The impact of Google Trends index and encompassing tests on forecast combinations in tourism

Abstract

Purpose Given that the use of Google Trends data is helpful to improve forecasting performance, this study aims to investigate whether the precision of forecast combination can benefit from the use of Google Trends Web search index along with the encompassing set. Design/methodology/approach Grey prediction models generate single-model forecasts, while Google Trends index serves as an explanatory variable for multivariate models. Then, three combination sets, including sets of univariate models (CUGM), all constituents (CAGM) and constituents that survive the forecast encompassing tests (CSET), are generated. Finally, commonly used combination methods combine the individual forecasts for each combination set. Findings The tourism volumes of four frequently searched-for cities in Taiwan are used to evaluate the accuracy of three combination sets. The encompassing tests show that multivariate grey models play a role to be reckoned with in forecast combinations. Furthermore, the empirical results indicate the usefulness of Google Trends index and encompassing tests for linear combination methods because linear combination methods coupled with CSET outperformed that coupled with CAGM and CUGM. Practical implications With Google Trends Web search index, the tourism sector may benefit from the use of linear combinations of constituents that survive encompassing tests to formulate business strategies for tourist destinations. A good forecasting practice by estimating ex ante forecasts post-COVID-19 can be further provided by scenario forecasting. Originality/value To improve the accuracy of combination forecasting, this research verifies the correlation between Google Trends index and combined forecasts in tourism along with encompassing tests.