over Different Time Horizons

This study investigates the performance of combination forecasts in comparison to individual forecasts. The empirical study focuses on the UK outbound leisure tourism demand for the USA. The combination forecasts are based on the competing forecasts generated from seven individual forecasting techniques. The three combination methods examined in this study are: the simple average combination method, the variance-covariance combination method and the discounted mean square forecast error method. Encompassing tests are applied to examine their effects on the forecasting performance of combination forecasts. The empirical results suggest that combination forecasts overall play an important role in the improvement of forecasting accuracy in that they are superior to the best of the individual forecasts over different forecasting horizons. Furthermore, the simple average combination method is outperformed by the other two more sophisticated combination methods. The variance-covariance combination method turns out to be the best among the three combination methods. Another finding of this study is that the encompassing test does not contribute significantly to the improved accuracy of combination forecasts. This study provides robust evidence of the efficiency of combination forecasts