Time-Series Model Evaluation using AIC and BIC

Medium Time-series Analysis Model Evaluation

A financial analyst is evaluating a time series model developed to forecast quarterly sales for a company. The analyst has assessed the model's fit using the following metrics: the Akaike Information Criterion (AIC) and the Bayesian Information Criterion (BIC). By examining these metrics, the analyst aims to determine the relative quality of different statistical models.

Assume the model under evaluation has an AIC value of 120 and a BIC value of 125. The analyst is considering two alternative models. The first model has an AIC of 130 and a BIC of 135, while the second model presents an AIC of 115 and a BIC of 120.

Which of the following statements is TRUE regarding model evaluation based on the AIC and BIC criteria?

The first alternative model is preferred over the current model according to both AIC and BIC.

The second alternative model is preferred over the current model according to both AIC and BIC.

The current model is preferred over both alternative models based on the AIC criterion, but not necessarily based on the BIC criterion.

Hint

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