Question

Which of the following values of the exponential smoothing constant would emphasize the most recent forecast?

A. 1

B. 0

C. 2.0

D. cannot be determined from the information provided

Answer 1

Correct Answer:

B

Working note:

EMA for period t = (closing value at period t-1 - forecasted value at period t-1)* alpha + forecasted value at period t-1

When alpha = 0

Then,

EMA for period t = (closing value at period t-1 - forecasted value at period t-1)*0 + forecasted value at period t-1

Or,

EMA for period t = forecasted value at period t-1

Hence, alpha of 0, will cause exponential forecast to be equal to the most recent forecasted value.