Forecasting

Forecasting is the process of making predictions of the future based on past and present data and analysis of trends. A commonplace example might be estimation of some variable of interest at some specified future date. Prediction is a similar, but more general term. Both might refer to formal statistical methods employing time series, cross-sectional or longitudinal data, or alternatively to less formal judgmental methods. Usage can differ between areas of application: for example, in hydrology, the terms "forecast" and "forecasting" are sometimes reserved for estimates of values at certain specific future times, while the term "prediction" is used for more general estimates, such as the number of times floods will occur over a long period.

Risk and uncertainty are central to forecasting and prediction; it is generally considered good practice to indicate the degree of uncertainty attaching to forecasts. In any case, the data must be up to date in order for the forecast to be as accurate as possible.

Time series

A time series is a sequence of data points that

1) Consists of successive measurements made over a time interval

2) The time interval is continuous

3) The distance in this time interval between any two consecutive data point is the same

4) Each time unit in the time interval has at most one data point

Examples of time series are ocean tides, counts of sunspots, and the daily closing value of the Dow Jones Industrial Average.

Non-Examples: The height measurements of a group of people where each height is recorded over a period of time and each person has only one record in the data set.

Panel data set is sometimes difficult to be differentiated from time series data set. One data set may exhibit both characteristics of panel data set and time series data set. One way to differentiate is to ask: what makes one data record unique from the other records? If the answer is the time data field, then this is a time series data set candidate. If determining a unique records requires a time data field and an additional identifier which is unrelated to time (student ID, stock symbol, country code), then it is a panel data candidate. If the differentiation lies on the non time identifier, then the data set is a cross sectional data set candidate.