Improvement of Auto-Regressive Integrated Moving Average models using Fuzzy logic and Artificial Neural Networks (ANNs)

  • Authors:

  • Mehdi Khashei;Mehdi Bijari;Gholam Ali Raissi Ardali

  • Affiliations:

  • Department of Industrial Engineering, Isfahan University of Technology, Isfahan, Iran;Department of Industrial Engineering, Isfahan University of Technology, Isfahan, Iran;Department of Industrial Engineering, Isfahan University of Technology, Isfahan, Iran

  • Venue:
  • Neurocomputing
  • Year:
  • 2009

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Abstract

Time series forecasting is an active research area that has drawn considerable attention for applications in a variety of areas. Auto-Regressive Integrated Moving Average (ARIMA) models are one of the most important time series models used in financial market forecasting over the past three decades. Recent research activities in time series forecasting indicate that two basic limitations detract from their popularity for financial time series forecasting: (a) ARIMA models assume that future values of a time series have a linear relationship with current and past values as well as with white noise, so approximations by ARIMA models may not be adequate for complex nonlinear problems; and (b) ARIMA models require a large amount of historical data in order to produce accurate results. Both theoretical and empirical findings have suggested that integration of different models can be an effective method of improving upon their predictive performance, especially when the models in the ensemble are quite different. In this paper, ARIMA models are integrated with Artificial Neural Networks (ANNs) and Fuzzy logic in order to overcome the linear and data limitations of ARIMA models, thus obtaining more accurate results. Empirical results of financial markets forecasting indicate that the hybrid models exhibit effectively improved forecasting accuracy so that the model proposed can be used as an alternative to financial market forecasting tools.