Mean absolute percentage error and bias in economic forecasting

This article develops a simple theoretical framework to show how forecasters may bias downward point predictions under the assumption that the asymmetric loss function is directly related to the (Mean) Absolute Percentage Error (M)APE.

► Simple theoretical framework shows how forecasters bias downward point predictions. ► Asymmetric loss function is directly related to the (Mean) Absolute Percentage Error. ► Relationship between the optimal point predictions is considered and simulated.