Backward‐in‐Time Selection of the Order of Dynamic Regression Prediction Model

DOI10.1002/FOR.2265MaRDI QIDQ4687352zbMATHOpenAlexFDO

Authors Ioannis K. Vlachos, Dimitris Kugiumtzis

Publication date 11 October 2018

Published in Journal of Forecasting (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1301.2410

zbMATH Keywords

predictionvariable selectionmulticollinearitymultivariate time seriesfeedback

Mathematics Subject Classification ID

Time series, auto-correlation, regression, etc. in statistics (GARCH) (62M10) Applications of statistics to biology and medical sciences; meta analysis (62P10) Applications of statistics to economics (62P20) Monte Carlo methods (65C05) Economic time series analysis (91B84)

Abstract: We investigate the optimal structure of dynamic regression models used in multivariate time series prediction and propose a scheme to form the lagged variable structure called Backward-in-Time Selection (BTS) that takes into account feedback and multi-collinearity, often present in multivariate time series. We compare BTS to other known methods, also in conjunction with regularization techniques used for the estimation of model parameters, namely principal components, partial least squares and ridge regression estimation. The predictive efficiency of the different models is assessed by means of Monte Carlo simulations for different settings of feedback and multi-collinearity. The results show that BTS has consistently good prediction performance while other popular methods have varying and often inferior performance. The prediction performance of BTS was also found the best when tested on human electroencephalograms of an epileptic seizure, and to the prediction of returns of indices of world financial markets.

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