Comparing models for hires rate with MAD. When comparing competing forecast methods, a primary concern is the relative accuracy of the methods. Ultimately, how well a forecasting method does is reflected in the residuals (“prediction errors”).

(a) One measure of forecasting accuracy is mean absolute deviation (MAD).

As the name suggests, it is a measure of the average size of the prediction errors.

For a given set of residuals (et),

where et is the residual for period t and n is the number of available residuals. Compute MAD for the residuals from the 1-month, 2-month, 3-month, and 4-month moving-average models determined in Exercise 13.46, part (c).

(b) What moving-average span value corresponds with the smallest MAD?

MAD n