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Unformatted text preview: Click to edit Master subtitle style 8/5/11 Lecture 3 Moving average and exponential smoothing 8/5/11 Moving Averages A moving average is obtained by calculating the mean for a specified set of values and then using it to forecast the next period. That is, n X X X M n t t t t ) ( 1 1 + + + + = (3.1) t t M F = + 1 (3.2) Where Moving average and exponential smoothing t X is the observation at time t n is the number of periods moving window = + 1 t F forecast value for period t +1 made at time t 8/5/11 Example 31 Moving average Moving average and exponential smoothing The first moving average at Sep85 is 248.90 3 ) ( 2 1 1 + + + = t t t t Y Y Y Y 90 . 248 3 38 . 238 81 . 250 53 . 257 = + + The forecast value at Dec85 is 248.90 (Assume n = 3), M ic ro soft O ffic e l 9 7 2 0 0 3 W o rk s 8/5/11 Remarks on Moving Averages Good for stationary data Laglength determined optimally by underlying cycle Difficult to capture peaks and troughs of the series  fail to deal with nonstationary data Equal weight Moving average and exponential smoothing 8/5/11 Simple Exponential Smoothing Moving average and exponential smoothing Simple exponential smoothing takes the form of:...
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 Spring '09

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