AVERAGE OF FORECASTS - AN IMPROVEMENT

Stein-rules are used in forming combination forecasts. Such forecasts have smaller prediction risk, under certain conditions, than the prefe rred method of average of forecasts. The new composite forecasts will be theoretically biased, but are likely to have smaller mean squared e rror of forecasts as shown in the empirical excercises examined. When the forecasts appear to be unbiased and have a common mean, Lindley-ty pe combination is most useful.