If the time series in an exponential smoothing model exhibits a negative trend, the _____.
A) mean square error will be negative
B) value of smoothing constant will either be less than zero or greater than one
C) forecast will overshoot the actual values
D) future forecasts will rely solely upon expertise of people in developing forecasts

Question

Quizplus · Accepted Answer

Exponential smoothing models are designed to identify and forecast trends in time series data. When there is a negative trend in the data, forecasts can overshoot the actual values because the model assumes that the trend will continue at the same rate. As a result, the forecast may not properly account for the decreasing trend and may predict values that are higher than what actually occurs. The mean square error cannot be negative, and the value of the smoothing constant must be between zero and one. The expertise of people may be used to develop better forecasts, but this alone cannot compensate for a flawed model.

If the Time Series in an Exponential Smoothing Model Exhibits