Question

You have fit multiple alternative seasonal forecast models to a time series. The best method to choose the optimum model is:

maximum correction factor

maximum MSE

minimum standard deviation

minimum MSE

Answer 1

Correct answer: Minimum MSE

Explanation:

Model selection is very important for any time series forecast. When dealing with multiple alternative seasonal data, the forecast models to fit the data is depends on certain factors. The best methods to choose the optimum model is minimum MSE. Since minimizing the MSE is almost equivalent to minimizing the variance, and the estimator results in this is the minimum variance unbiased estimator. Also, we know that in statistical modelling, the MSE represents the difference between the actual and the observation values predicted by the model. And hence, it is used to determine the extent to which the model fits the data in forecasting.