Working Papers 2001 – Abstracts

Unmasking the Theta Method

Rob J. Hyndman and Baki Billah

The Theta method of forecasting performed particularly well in the M3-competition and is therefore of interest to forecast practitioners. The description of the method given by Assimakopoulos and Nikolopoulos (2000) involves several pages of algebraic manipulation and is difficult to comprehend. We show that the method can be expressed much more simply; furthermore we show that the forecasts obtained are equivalent to simple exponential smoothing with drift.

Keywords: exponential smoothing, forecasting competitions, state space models.

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