XXV Edition

1-2 December 2016"

A Horse for Almost Every Course; Forecasting in Banking and Finance with the Theta Method

Nikolopoulos Konstantinos , Bangor University

In this paper we conclude the theoretical underpinning of the method as: a) we consider a non-unit root DGP and a stochastic trend, b) damping that trend via a double Theta smoothing approach, c) echoing local data characteristic via a local Theta method, d) providing a full multivariate extension. But most importantly we provide sound evidence that it is the benchmark to beat (via a thorough literature account) and provide empirical results that show that the method is fully applicable in non-OR/MS contexts with applications in finance and economics, and in any other context: A Horse for almost every course⋯

Area: Asset Pricing and Derivatives

Keywords: forecasting

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