Simple versus complex selection rules for forecasting many time series

A major problem for many organisational forecasters is to choose the appropriate forecasting method for a large number of time series. Various selection rules have been proposed in order to enhance forecasting accuracy. The simpler approach for model selection involves the identification of a single method, which is applied to all data series in an aggregate manner, without taking into account the specific characteristics of a single series. On the other hand, individual selection includes the identification of the best method for each series, though it is more computationally intensive. Moreover, a simple combination of methods also provides an operational benchmark. The current study explores the circumstances under which individual model selection is beneficial and when this approach should be preferred to aggregate selection or combination. The superiority of each approach is analysed in terms of data characteristics, existence or not of a dominant method and stability of the competing methods’ comparative performance. In addition, the size and composition of the pools of methods under consideration are examined. In order to assess the efficacy of individual model selection in the cases considered, simple selection rules are proposed, based on withinsample best fit or best forecasting performance for different forecast horizons. The analysis shows that individual selection works best when specific sub-populations of data are 1 Lancaster Centre for Forecasting, Department of Management Science, Lancaster University Management School, Lancaster, LA1 4YX, UK * corresponding author: [email protected]