WMA
BUS 173 LECTURE 12
SO FAR…

After the second mid, we have looked into:
 Simple
Average
 Regression
 Moving Average
3
period
 4 period
 5 period
 Accuracy
check
 MAD/MAPE
 MSE
Day
Price
28/03/2013
67.8
31/03/2013
72.5
01/04/2013
68.2
02/04/2013
72
03/04/2013
70.4
04/04/2013
68.6
07/04/2013
69
08/04/2013
69.3
09/04/2013
69.5
10/04/2013
72
11/04/2013
71.5
15/04/2013
76
You have decided to use Simple moving average, for 3 periods. Calculate the MSE
and MAPE for the method.
Calculate the forecast for the next three days
WEIGHTED MOVING AVERAGE (WMA)
Different periods have different weights
 Normally the recent period is given the higher
weights.

 Stock
Price
 National Income
 Weather Forecasts
WMA - 2

Determining weights and periods:
 Depends
on the person who is calculating the
forecast
 Normally 3 – 5 periods are chosen

To carry out a proper WMA forecasting, you
need to have a dialogue with the decision
maker
FORMULAE FOR WMA
𝐹𝑡 = 𝑊1 × 𝐷𝑡−1 + 𝑊2 × 𝐷𝑡−2 + 𝑊3 × 𝐷𝑡−3
 This is the formula for the three period moving
average

EXAMPLE
Months
Demand (in thousand)
December ‘12
25
January ’13
29
February ’13
31
March ’13
30
April ’13
26
May ’13
24
June ’13
20
July ’13
17
August ’13
16
September ’13
20
October ’13
23
November ’13
28
December ’13
31
January ’14
34
February ’14
37
March ‘14
33
WEIGHTS TO USE

Focus on Recent Values
Recent one has 50%
 T -2 has a weight of 30%
 T -3 has a weight of 20%


Further focus on Recent Values
Recent one has 70%
 T – 2 has a weight of 20%
 T – 3 has a weight of 10%


How do you determine which forecast is the best?
Thank You
END OF LECTURE