The data file Earnings per Share shows earnings per share of...

The data file Earnings per Share shows earnings per share of a corporation over a period of 18 years.
a. Using smoothing constants $\alpha=0.8,0.6,0.4$, and 0.2 , find forecasts based on simple exponential smoothing.
b. Which of the forecasts would you choose to use?

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Key Concepts

Model Selection and Forecast Evaluation

The process of choosing the most appropriate forecast among several alternatives based on performance criteria such as forecast errors and consistency. In the context of exponential smoothing, different smoothing constants can be evaluated to determine which provides the most accurate and reliable predictions for future values.

Simple Exponential Smoothing

A forecasting method for time series data that uses weighted averages of past observations, where more weight is given to recent data. This method generates forecasts by applying a smoothing constant to adjust predictions over time without assuming any trend or seasonal variation in the data.

Smoothing Constant

A parameter, commonly denoted as ?, that ranges between 0 and 1 and determines how quickly the forecasts respond to changes in the data. A higher ? makes the forecast more sensitive to recent observations, while a lower ? results in a smoother, less responsive forecast.

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