Parsimony, Model Adequacy and Periodic Correlation in Time Series Forecasting

DOI10.2307/1403750zbMATH Open0925.62397arXiv1611.01535OpenAlexW3099767913MaRDI QIDQ4850129FDOQ4850129

Authors: A. Ian McLeod 

Publication date: 8 November 1999

Published in: International Statistical Review / Revue Internationale de Statistique (Search for Journal in Brave)

Abstract: The merits of the modelling philosophy of Box & Jenkins (1970) are illustrated with a summary of our recent work on seasonal river flow forecasting. Specifically, this work demonstrates that the principle of parsimony, which has been questioned by several authors recently, is helpful in selecting the best model for forecasting seasonal river flow. Our work also demonstrates the importance of model adequacy. An adequate model for seasonal river flow must incorporate seasonal periodic correlation. The usual autoregressive-moving average (ARMA) and seasonal ARMA models are not adequate in this respect for seasonal river flow time series. A new diagnostic check, for detecting periodic correlation in fitted ARMA models is developed in this paper. This diagnostic check is recommended for routine use when fitting seasonal ARMA models. It is shown that this diagnostic check indicates that many seasonal economic time series also exhibit periodic correlation. Since the standard forecasting methods are inadequate on this account, it can be concluded that in many cases, the forecasts produced are sub-optimal. Finally, a limitation of the arbitrary combination of forecasts is also illustrated. Combining forecasts from an adequate parsimonious model with an inadequate model did not improve the forecasts whereas combining the two forecasts of two inadequate models did yield an improvement in forecasting performance. These findings also support the model building philosophy of Box & Jenkins. The non-intuitive findings of Newbold & Granger (1974) and Winkler & Makridakis (1983) that the apparent arbitrary combination of forecasts from similar models will lead to forecasting performance is not supported by our case study with river flow forecasting.

Full work available at URL: https://arxiv.org/abs/1611.01535

Mathematics Subject Classification ID

Inference from stochastic processes and prediction (62M20)

Cited In (18)

• PAR(1) model analysis: a web-based shiny application for analysing periodic autoregressive models
• Periodic autoregressive models for time series with integrated seasonality
• Model-building problem of periodically correlated \(m\)-variate moving average processes
• Parameter estimation for ARTFIMA time series
• Periodic autoregressive model identification using genetic algorithms
• On modelling and diagnostic checking of vector periodic autoregressive time series models
• Estimation and model adequacy checking for multivariate seasonal autoregressive time series models with periodically varying parameters
• Periodic autoregressive models with closed skew-normal innovations
• A seasonal analysis of riverflow trends
• Improved multivariate portmanteau test
• Maximum of entropy and extension of covariance matrices for periodically correlated and multivariate processes.
• Aggregation and systematic sampling of periodic ARMA processes
• A new frequency domain approach of testing for covariance stationarity and for periodic stationarity in multivariate linear processes
• Robust estimation of periodic autoregressive processes in the presence of additive outliers
• Forecasting with prediction intervals for periodic autoregressive moving average models
• Periodic integration: Further results on model selection and forecasting
• Bootstrapping periodic state-space models
• A spectral density test for whiteness

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