Nonparametric forecasting: A comparison of three kernel-based methods

In this paper the use of three kernel-based nonparametric forecasting methods - the conditional mean, the conditional median, and the conditional mode - is explored in detail. Several issues related to the estimation of these methods are discussed, including the choice of the bandwidth and the type of kernel function. The out-of-sample forecasting performance of the three nonparametric methods is investigated using 60 real time series. We find that there is no superior forecast method for series having approximately less than 100 observations. However, when a time series is long or when its conditional density is bimodal there is quite a difference between the forecasting performance of the three kernel-based forecasting methods.