English

Estimating the Conditional Forecast-Revision Scale in Sequential Models: Local-Smoothing Limits, Matched Models, and Cost--Accuracy Trade-offs

Methodology 2026-08-04 v1 Computation

Abstract

The \emph{conditional forecast-revision scale} \It={\Var(\E[Xt+1\Ft]\Ft1)}1/2\It=\{\Var(\E[X_{t+1}\mid\F_t]\mid\F_{t-1})\}^{1/2} measures the history-specific size of the forecast update induced by observing XtX_t. Because it is a conditional second moment built from two unknown conditional means, it is not directly observed. We study which estimator of \It\It should be used under different structural assumptions and computational budgets. The comparison includes a block bootstrap, a conditional-variance model, a fitted state-space model, two O(1)O(1) streaming smoothers, and the forget gate of an already-trained recurrent network. An error decomposition separates one-step-prediction error from conditional-second-moment tracking error. We show that externally tuned lag-only smoothers can be inconsistent when \It\It changes at the sampling scale, although they attain the usual T2/3T^{-2/3} mean-squared-error rate (T1/3T^{-1/3} for \It\It) under slow variation; a correctly specified state-space estimator escapes this limit by using the current state. In volatility-driven designs, a cheap conditional-variance model is more accurate and over one hundred times cheaper \emph{as a point estimator} than the implemented block bootstrap, whose value lies in the sampling distribution it provides rather than in point tracking. In state-driven designs, only the structurally matched filter recovers the fast variation. Read directly, a trained network's forget gate does not track \It\It --- though a supervised linear probe on the full gate vector does, so \It\It is linearly decodable but not available for free. These results yield a practical rule: identify the conditional-second-moment structure, match the estimator to it, and then choose the least costly adequate method.

Keywords

Cite

@article{arxiv.2608.03163,
  title  = {Estimating the Conditional Forecast-Revision Scale in Sequential Models: Local-Smoothing Limits, Matched Models, and Cost--Accuracy Trade-offs},
  author = {Hui-Mean Foo and Yuan-chin Ivan Chang},
  journal= {arXiv preprint arXiv:2608.03163},
  year   = {2026}
}

Comments

32 pages, 3 figures