When the underlying mean of a time series changes frequently but there is no trend, cyclical, or seasonal influence,
A) an exponential smoothing forecast with alpha = 0.01 should outperform a exponential smoothing forecast with alpha = 0.30.
B) a simple moving average forecast with n = 3 should outperform a simple moving average forecast with n = 20.
C) a simple moving average forecast with n = 20 should perform about the same as a simple moving average forecast with n = 3.
D) a simple moving average forecast with n = 20 should outperform a simple moving average forecast with n = 3.

Question

Quizplus · Accepted Answer

A simple moving average with a smaller n (e.g., n = 3) is more responsive to frequent changes in the underlying mean, making it more suitable for such a time series compared to a larger n (e.g., n = 20), which would smooth out these changes.

When the Underlying Mean of a Time Series Changes Frequently