Assume that a brokerage firm concentrates on a few

closely #123
Assume that a brokerage firm concentrates on a few closely related industries. It has produced
a set of estimates of earnings for 1985 and subsequently recorded the earnings that actually
occurred. These data are given below:A. Plot these points on a Predictive Realization Diagram.
What can we learn about the forecast pattern of this firm from the PRD? B. Calculate the mean
square forecasted error for this firm.C. Decompose the error by level of aggregation. That is,
determine what percentage of the error was due to the inability to forecast earnings for this
sector of the economy, what percentage was due to an inability to forecast each industry, and
what percentage was due to an inability to forecast differences for each firm.D. Examine
another level of decomposition. Assume that there are three analysts, each following one
industry. What is the mean squared error of each analyst? How much of the error of each
analyst is due to the analyst's inability to predict the future of the industry followed, and how
much is due to an inability to differentiate between the firms in the industry? E. Decompose the
error by forecast characteristics. Find what percentage of the error is due to bias, what
percentage is due to variance, and what percentage is due to covariance.View Solution:
Assume that a brokerage firm concentrates on a few closely

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