A novel hybridization of artificial neural networks and ARIMA models for time series forecasting
Improving forecasting especially time series forecasting accuracy is an important yet often difficult task facing decision makers in many areas. Both theoretical and empirical findings have indicated that integration of different models can be an effective way of improving upon their predictive performance, especially when the models in combination are quite different. Artificial neural networks (ANNs) are flexible computing frameworks and universal approximators that can be applied to a wide range of forecasting problems with a high degree of accuracy. However, using ANNs to model linear problems have yielded mixed results, and hence; it is not wise to apply ANNs blindly to any type of data. Autoregressive integrated moving average (ARIMA) models are one of the most popular linear models in time series forecasting, which have been widely applied in order to construct more accurate hybrid models during the past decade. Although, hybrid techniques, which decompose a time series into its linear and nonlinear components, have recently been shown to be successful for single models, these models have some disadvantages. In this paper, a novel hybridization of artificial neural networks and ARIMA model is proposed in order to overcome mentioned limitation of ANNs and yield more general and more accurate forecasting model than traditional hybrid ARIMA-ANNs models. In our proposed model, the unique advantages of ARIMA models in linear modeling are used in order to identify and magnify the existing linear structure in data, and then a neural network is used in order to determine a model to capture the underlying data generating process and predict, using preprocessed data. Empirical results with three well-known real data sets indicate that the proposed model can be an effective way to improve forecasting accuracy achieved by traditional hybrid models and also either of the components models used separately. (C) 2010 Elsevier B.V. All rights reserved.
time series forecasting artificial neural networks (anns) hybrid models auto-regressive integrated moving average (arima)