Average of forecasts: an improvement

Stein-rules are used in forming combination forecasts. Such forecasts have smaller prediction risk, under certain conditions, than the preferred method of average of forecasts. The new composite forecasts will be theoretically biased, but are likely to have smaller mean squared error of forecasts as shown in the empirical exercises examined. When the forecasts appear to be unbiased and have a common mean, Lindley-type combination is most useful.