Consensus forecast

Consensus forecast

In a number of sciences, ranging from econometrics to meteorology, consensus forecasts are predictions of the future that are created by combining together several separate forecasts which have often been created using different methodologies. Applications can range from forecasting the weather to predicting the annual Gross Domestic Product of a country or the number of cars a company or an individual dealer is likely to sell in a year. While forecasts are often made for future values of a time series, they can also be for one-off events such as the outcome of a presidential election or a football match.



Forecasting plays a key role in any organisation's planning process as it provides insight into uncertainty. Through simulation, one will be able to assess whether proposed strategies are likely to produce the desired objectives within predefined limits. In the field of economic forecasting, the future path of the economy is intrinsic to almost every company's business success, and hence there is considerable demand for accurate economic forecasts. Matching this strong demand is the large volume of readily available forecast information from private firms, government and various international agencies. However, deciphering the best forecast method is no easy task, and largely depends on the objectives of the user and the constraints they are likely to face. Rather than try to identify a single best forecasting method, an alternative approach is to combine the results from independent forecasters and take an average of the forecasts.

The method of taking a simple mean average of a panel of independent forecasts, derived from different forecasting methods, is known as combining forecasts and the result is often referred to as a consensus forecast. Unless a particular forecast model which produces smaller forecast errors compared to other individual forecasts can be identified, adopting the consensus approach can be beneficial due to diversification gains. Combining economic forecasts is well established in many countries and can count central banks, government institutions and businesses among the users. In recent decades, consensus forecasts have attracted much interest, backed by the publication of academic research on forecast accuracy. Empirical studies[1][2] show that pooling forecasts increased forecast accuracy. One of the advantages of using consensus forecasts is that it can prove useful if there is a high degree of uncertainty or risk attached to the situation and the selection of the most accurate forecast in advance is difficult. Even if one method is identified as the best, combining is still worthwhile if other methods can make some positive contribution to the forecast accuracy. Moreover, many factors can affect the independent forecast and these, along with any additional useful information, might be captured by using the consensus approach. Another argument in favour of this method is that individual forecasts may be subject to numerous behavioural biases, but these can be minimised by combining independent forecasts together. Hence, combining is seen as helping to improve forecast accuracy by reducing the forecast errors of individual forecasts. Furthermore, averaging forecasts is likely to be more useful when the data and the forecasting techniques that the component forecasts are drawn from differ substantially. And even though it is only a simple approach (typically an unweighted mean average), this method is just as useful as other more sophisticated models. Indeed, more recent studies in the past decade have shown that, over time, the equal weights combined forecast is usually more accurate than the individual forecast which make up the consensus.[3][4][5]

In sum, the usefulness of the consensus forecast technique has been supported by a wealth of empirical studies in recent decades. The use of equal weights in the combining method is appealing because of its simplicity and is easy to describe. Among others, this simple method of averaging the forecasts of individual forecasters has been put into practice by central banks as they try to gauge expectations in the private sector. An empirical study (2000) carried out by Professor Roy Batchelor of City University Business School,[citation needed] demonstrates greater accuracy in the consensus forecasts over macroeconomic projections produced by leading multinational agencies such as the International Monetary Fund and the Organisation for Economic Co-operation and Development.

See also


  1. ^ Clemen, R. (1989) "Combining Forecasts: A review and annotated bibliography." '['International Journal of Forecasting
  2. ^ Marten Blix, Joachim Wadefjord, Ulrika Wienecke and Martin Adahl (2001) "How good is the forecasting performance of major institutions?", Economic Review 3/2001
  3. ^ Makridakis and Hibon (2000)"The M3-Competition: Results, Conclusions and Implications", International Journal of Forecasting, 16, 451–476
  4. ^ McNees, Stephen K. (1987), "Consensus Forecasts: Tyranny of the Majority", New England Economic Review, November 1987
  5. ^ R. Golinelli and G. Parigi (2008) "Real-Time Squared: A Real-Time Data Set for Real-Time GDP Forecasting", International Journal of Forecasting, 24 (3), 368–385


Wikimedia Foundation. 2010.

Look at other dictionaries:

  • Consensus forecast — The mean of all financial analysts forecasts for a company. The New York Times Financial Glossary * * * consensus forecast UK US noun [C] ► ECONOMICS, FINANCE a method of measuring how successful a company or the economy will be. A consensus… …   Financial and business terms

  • consensus forecast — The mean of all financial analysts forecasts for a company. Bloomberg Financial Dictionary * * * consensus forecast UK US noun [C] ► ECONOMICS, FINANCE a method of measuring how successful a company or the economy will be. A consensus forecast is …   Financial and business terms

  • EPS — See: earnings per share earnings per share (EPS) The EPS is calculated by dividing the earnings ( pre tax profits) by the number of shares in issue. This is one of the key ratios that is used in the valuation of shares as it expresses the amount… …   Financial and business terms

  • Whisper Number — 1. Traditionally, the unofficial and unpublished earnings per share (EPS) forecasts that circulate among professionals on Wall Street. In this context, whisper numbers were generally reserved for the favored (wealthy) clients of a brokerage. 2. A …   Investment dictionary

  • Stock selection criteria — is a strategy in which an analyst or investor uses a systematic form of analysis to determine if a particular stock constitutes a good investment which should be added to their portfolio. The objective of stock selection criteria is maximizing… …   Wikipedia

  • Согласованный прогноз — среднее всех прогнозов развития компании, сделанных финансовыми аналитиками. По английски: Consensus forecast Синонимы: Совокупный прогноз См. также: Экономические прогнозы Финансовое планирование Финансовый словарь Финам …   Финансовый словарь

  • National Association for Business Economics — Formation 1959 Purpose/focus business economics Headquarters Washington, D.C. Region served United States …   Wikipedia

  • Earnings surprises — Positive or negative differences from the consensus forecast of earnings by institutions such as First Call or IBES. Negative earnings surprises generally have a greater adverse affect on stock prices than the reciprocal positive earnings… …   Financial and business terms

  • earnings per share — ( EPS) A company s profit divided by its number of common outstanding shares. If a company earning $2 million in one year had 2 million common shares of stock outstanding, its EPS would be $1 per share. In calculating EPS, the company often uses… …   Financial and business terms

  • earnings surprises — Positive or negative differences from the consensus forecast of earnings by institutions such as first call or IBES. Negative earnings surprises generally have a greater adverse effect on stock prices than a reciprocal positive earnings surprise …   Financial and business terms

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”