Another look at forecast trimming for combinations: robustness, accuracy and diversity (2208.00139v2)

Abstract: Forecast combination is widely recognized as a preferred strategy over forecast selection due to its ability to mitigate the uncertainty associated with identifying a single "best" forecast. Nonetheless, sophisticated combinations are often empirically dominated by simple averaging, which is commonly attributed to the weight estimation error. The issue becomes more problematic when dealing with a forecast pool containing a large number of individual forecasts. In this paper, we propose a new forecast trimming algorithm to identify an optimal subset from the original forecast pool for forecast combination tasks. In contrast to existing approaches, our proposed algorithm simultaneously takes into account the robustness, accuracy and diversity issues of the forecast pool, rather than isolating each one of these issues. We also develop five forecast trimming algorithms as benchmarks, including one trimming-free algorithm and several trimming algorithms that isolate each one of the three key issues. Experimental results show that our algorithm achieves superior forecasting performance in general in terms of both point forecasts and prediction intervals. Nevertheless, we argue that diversity does not always have to be addressed in forecast trimming. Based on the results, we offer some practical guidelines on the selection of forecast trimming algorithms for a target series.