A new hybrid for improvement of auto-regressive integrated moving average models applying particle swarm optimization

Abstract

A time series forecasting is an active research applied significantly in a variety of economics areas. Over the past three decades an auto-regressive integrated moving average (ARIMA) model, as one of the most important time series models, has been applied in financial markets forecasting. Recent researches in time series forecasting ARIMA models indicate some basic limitations which detract from their popularities for financial time series forecasting: One limitation of an ARIMA model is that it requires a large amount of historical data to generate an accurate result. Both theoretical and empirical findings suggest that combining different time series models may be an effective method of improving the predictive performances of data especially when the models in the ensemble are quite different. The main purpose of present paper is to combine the ARIMA model with the particle swarm optimization (PSO) model in order to improve and generate more accurate forecasting results. Under small data information, combining the PSO and ARIMA models performs better performance results compared to an ARIMA model itself. The proposed model is robust and it may be used as an alternative forecasting tool in economics areas.