Question

Even though the moving averages help highlight the long-run trend of a time series, the moving-average model is not designed for making forecasts in the presence of trends. Explain the reason why we should not rely on moving averages for predicting future observations of a trending series.

Answer 1

Moving averages cannot be used to make future forecasts successfully because certain events like demand, supply ,quality and external factors such as competitions cannot be determined with the use of Moving averages, and these factors have a huge impact on prices

Step-by-step explanation:

Moving averages are generated / obtained using data from events that occurred previously hence they highlight the long-run trend of a time series, but they cannot be used to make future forecasts successfully because certain events like demand, supply ,quality and external factors such as competitions cannot be determined with the use of Moving averages. and these factors have a huge impact on prices