Daily Dow Analysis

Using a factor of 0.9, exponential smoothing is considerably less accurate at the daily level. The forecast figures predicted 10,073.40 to 10,318.35. The difference in the final day's closing for which there is both an actual and a forecast close is 127.53 points, or more than 1.2 percent. The sum of the total errors is 2321.96, more than six times the sum at .6 and more than 12 times the sum at .3. Variation at the individual level is also greater, with the largest variation between the actual and predicted data at 569.74 points (or 5.4 percent) while the smallest variation was only 0.76 points (or 0.007 percent).

The quarterly Dow Jones Industrial Average increased 8,110.32 points from March 31, 1989 through March 31, 2002, or 354 percent, from 2,293.62 to 10,403.94. Using a factor of 0.3, exponential smoothing predicted an increase of 7,514.80 points, or an increase of 328 percent. The forecast figures predicted an increase from 2,293.62 to 9,808.42 (for the last data point which an actual figure exists due to the lag associated with exponential smoothing). The difference in the final quarter's closing for which there is both an actual and a forecast close is 595.52 points, or more than five percent. The largest quarterly error was 1,545.57 points (an error of 17.5 percent for the quarter while the smallest was 1.17 points, or 0.04 percent. The sum of the total errors is 11,330.95.

Using a factor of 0.6, exponential smoothing predicted an increase of 6,985.02 points, or an increase of 254 percent. The forecast figures predicted an increase from 2,753.2 to 9,738.22. The difference in the final year's closing for which there is both an actual and a forecast close is 283.28 points, or slightly less than three percent. The largest annual error was 4,097.92 points (an error of 36 percent for the year) while the smallest was 119.54 points, or 4.5 percent (the same as the .3 factor). The sum of the total errors is 17,745,83. As the graph illustrates, the forecast generally tracks the pattern of the actual, but with considerable difference in each data point.

illustrates, this results in a close track between the actual and forecast data points.

The annual Dow Jones Industrial Average increased 7,268.3 points from December 31, 1989 through December 31, 2001, or 264 percent, from 2,753.2 to 10,021.5. Using a factor of 0.3, exponential smoothing predicted an increase of 7,988.7 points, or an increase of 290 percent. The forecast figures predicted an increase from 2,753.2 to 10,741.89 (for the last data point which an actual figure exists due to the lag associated with exponential smoothing). The difference in the final year's closing for which there is both an actual and a forecast close is 720.39 points, or more than seven percent. The largest annual error was 2,875.97 points (an error of 25 percent for the year while the smallest was 119.54 points, or 4.5 percent. The sum of the total errors is 10,692.03. As the graph illustrates, the forecast tracks the pattern of the actual close, but with considerable difference in individual data points.

 

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