Quarterly Time-Series Forecasting With Neural Networks

Abstract

Forecasting of time series that have seasonal and other variations remains an important problem for forecasters. This paper presents a neural network (NN) approach to forecasting quarterly time series. With a large data set of 756 quarterly time series from the M3 forecasting competition, we conduct a comprehensive investigation of the effectiveness of several data preprocessing and modeling approaches. We consider two data preprocessing methods and 48 NN models with different possible combinations of lagged observations, seasonal dummy variables, trigonometric variables, and time index as inputs to the NN. Both parametric and nonparametric statistical analyses are performed to identify the best models under different circumstances and categorize similar models. Results indicate that simpler models, in general, outperform more complex models. In addition, data preprocessing especially with deseasonalization and detrending is very helpful in improving NN performance. Practical guidelines are also provided.