forecast

Forecast ARIMA or ARIMAX model responses or conditional variances

Syntax

[Y,YMSE] = forecast(Mdl,numperiods,Y0) [Y,YMSE] = forecast(Mdl,numperiods,Y0,Name,Value) [Y,YMSE,V] = forecast(___)

Description

[Y,YMSE] = forecast(Mdl,numperiods,Y0) returns numperiods consecutive forecasted responses Y and corresponding mean square errors YMSE of the fully specified, univariate ARIMA or ARIMAX model Mdl. The presample response data Y0 initializes the model to generate forecasts.

[Y,YMSE] = forecast(Mdl,numperiods,Y0,Name,Value) uses additional options specified by one or more name-value pair arguments. For example, for a model with a regression component, 'X0',X0,'XF',XF specifies the presample and forecasted predictor data X0 and XF, respectively.

[Y,YMSE,V] = forecast(___) also forecasts numperiods conditional variances V of a composite conditional mean and variance model (for example, an ARIMA and GARCH composite model) using any of the input argument combinations in the previous syntaxes.

Input Arguments

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`Mdl` — Fully specified ARIMA or ARIMAX model
`arima` model

Fully specified ARIMA or ARIMAX model, specified as an arima model returned by arima or estimate.

The properties of Mdl cannot contain NaNs.

`numperiods` — Forecast horizon
positive integer

Forecast horizon, or the number of time points in the forecast period, specified as a positive integer.

Data Types: double

`Y0` — Presample response data
numeric column vector | numeric matrix

Presample response data used to initialize the model for forecasting, specified as a numeric column vector with length numpreobs or a numpreobs-by-numpaths numeric matrix.

Rows of Y0 correspond to periods in the presample, and the last row contains the latest presample response. numpreobs is the number of specified presample responses and it must be at least Mdl.P. If numpreobs exceeds Mdl.P, forecast uses only the latest Mdl.P rows. For more details, see Time Base Partitions for Forecasting.

Columns of Y0 correspond to separate, independent paths.

If Y0 is a column vector, forecast applies it to each forecasted path. In this case, all forecast paths Y derive from the same initial conditions.
If Y0 is a matrix, it must have numpaths columns, where numpaths is the maximum among the second dimensions of the specified presample observation arrays Y0, E0, and V0.

Data Types: double

Name-Value Pair Arguments

Specify optional comma-separated pairs of Name,Value arguments. Name is the argument name and Value is the corresponding value. Name must appear inside quotes. You can specify several name and value pair arguments in any order as Name1,Value1,...,NameN,ValueN.

`'E0'` — Presample innovations
numeric column vector | numeric matrix

Presample innovations used to initialize the moving average (MA) component of the model or conditional variance model, specified as the comma-separated pair consisting of 'E0' and a numeric column vector or a numeric matrix with numpaths columns. forecast assumes that the presample innovations have a mean of 0.

Rows of E0 correspond to periods in the presample, and the last row contains the latest presample innovation. E0 must have at least Mdl.Q rows to initialize the MA component. If Mdl.Variance is a conditional variance model (for example, garch), E0 might require more than Mdl.Q rows. If the number of rows exceeds the minimum number required to forecast Mdl, forecast uses only the latest required rows.

Columns of E0 correspond to separate, independent paths.

If E0 is a column vector, forecast applies it to each forecasted path. In this case, the MA component and conditional variance model of all forecast paths Y derive from the same initial innovations.
If E0 is a matrix, it must have numpaths columns.
By default, if numpreobs ≥ Mdl.P + Mdl.Q, forecast infers any necessary presample innovations by passing the model Mdl and presample data to infer. For more details on this default for models containing a regression component, see X0 and XF.
By default, if numpreobs < Mdl.P + Mdl.Q, forecast sets all necessary presample innovations to 0.

Data Types: double

`'V0'` — Presample conditional variances
positive numeric column vector | positive numeric matrix

Presample conditional variances used to initialize the conditional variance model, specified as the comma-separated pair consisting of 'V0' and a positive numeric column vector or a positive numeric matrix with numpaths columns. If the model variance Mdl.Variance is constant, forecast ignores V0.

Rows of V0 correspond to periods in the presample, and the last row contains the latest presample conditional variance. If Mdl.Variance is a conditional variance model (for example, a garch model object), E0 might require more than Mdl.Q rows to initialize Mdl for forecasting. If the number of rows exceeds the minimum number required to forecast, the forecast function uses only the latest required presample conditional variances.

Columns of V0 correspond to separate, independent paths.

If V0 is a column vector, forecast applies it to each forecasted path. In this case, the conditional variance model of all forecast paths Y derive from the same initial conditional variances.
If V0 is a matrix, it must have numpaths columns.
By default, if you specify enough presample innovations E0 to initialize the conditional variance model, forecast infers any necessary presample conditional variances by passing the conditional variance model Mdl.Variance and E0 to infer.
By default, if you do not specify E0, but you specify enough presample responses Y0 to infer enough presample innovations, then forecast infers any necessary presample conditional variances from the inferred presample innovations.
By default, if you do not specify enough presample data, forecast sets all necessary presample conditional variances to the unconditional variance of the variance process.

Data Types: double

`'X0'` — Presample predictor data
numeric matrix

Presample predictor data used to infer presample innovations E0, specified as the comma-separated pair consisting of 'X0' and a numeric matrix with numpreds columns.

Rows of X0 correspond to periods in the presample, and the last row contains the latest set of presample predictor observations.

If you do not specify E0, X0 must have at least numpreobs – Mdl.P rows so that forecast can infer presample innovations. If the number of rows exceeds the minimum number required to infer presample innovations, forecast uses only the latest required presample predictor observations. A best practice is to set X0 to the same predictor data matrix used in the estimation, simulation, or inference of Mdl. This setting ensures the correct estimation of the presample innovations E0.
If you specify E0, then forecast ignores X0.

Columns of X0 represent separate time series variables, and they correspond to the columns of XF.

If you specify X0 but you do not specify forecasted predictor data XF, then forecast issues an error.

By default, forecast drops the regression component from the model when it infers presample innovations, regardless of the value of the regression coefficient Mdl.Beta.

Data Types: double

`'XF'` — Forecasted or future predictor data
numeric matrix

Forecasted or future predictor data, specified as the comma-separated pair consisting of 'XF' and a numeric matrix with numpreds columns. XF represents the evolution of specified presample predictor data X0 forecasted into the future (the forecast period).

Rows of XF correspond to time points in the future; XF(t,:) contains the t-period-ahead predictor forecasts. XF must have at least numperiods rows. If the number of rows exceeds numperiods, forecast uses only the first numperiods forecasts. For more details, see Time Base Partitions for Forecasting.

Columns of XF are separate time series variables, and they correspond to the columns of X0.

By default, forecast generates forecasts from Mdl without a regression component, regardless of the value of the regression coefficient Mdl.Beta.

Notes

forecast assumes that you synchronize all specified presample data sets such that the latest observation of each presample series occurs simultaneously. Similarly, forecast assumes that the first observation in the forecasted predictor data XF occurs in the next time point after the last observation in the presample predictor data X0.

Output Arguments

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`Y` — Minimum mean square error forecasts of response data
numeric matrix

Minimum mean square error (MMSE) forecasts of the conditional mean of the response data, returned as a numperiods-by-numpaths numeric matrix. Y represents a continuation of Y0 (Y(1,:) occurs in the next time point after Y0(end,:)).

Y(t,:) contains the conditional mean forecast of all paths for time point t in the forecast period (the t-period-ahead forecasts).

forecast determines numpaths from the number of columns in the presample data sets Y0, E0, and V0. For details, see Algorithms. If each presample data set has one column, then Y is a column vector.

Data Types: double

`YMSE` — Mean square errors of forecasted responses
numeric matrix

Mean square errors (MSEs) of the forecasted responses Y (or forecast error variances), returned as a numperiods-by-numpaths numeric matrix.

YMSE(t,:) contains the forecast error variances of all paths for time point t in the forecast period.

forecast determines numpaths from the number of columns in the presample data sets Y0, E0, and V0. For details, see Algorithms. If you do not specify any presample data sets or each data set is a column vector, then YMSE is a column vector.

The square roots of YMSE are the standard errors of the forecasts Y.

Data Types: double

`V` — Minimum MSE forecasts of conditional variances of future model innovations
numeric matrix

Minimum mean square error (MMSE) forecasts of the conditional variances of future model innovations, returned as a numperiods-by-numpaths numeric matrix. V has numPeriods rows and numPaths columns.

forecast sets the number of columns of V (numPaths) to the largest number of columns in the presample arrays Y0, E0, and V0. If you do not specify Y0, E0, and V0, then V is a numPeriods column vector.

In all cases, row i contains the conditional variance forecasts for the ith period.

Data Types: double

Examples

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Forecast Conditional Mean Response

Open Live Script

Forecast the conditional mean response of simulated data over a 30-period horizon.

Simulate 130 observations from a multiplicative seasonal MA model with known parameter values.

Mdl = arima('MA',{0.5,-0.3},'SMA',0.4,'SMALags',12,...
		'Constant',0.04,'Variance',0.2);
rng(200);
Y = simulate(Mdl,130);

Fit a seasonal MA model to the first 100 observations, and reserve the remaining 30 observations to evaluate forecast performance.

MdlTemplate = arima('MALags',1:2,'SMALags',12);
EstMdl = estimate(MdlTemplate,Y(1:100));

 
    ARIMA(0,0,2) Model with Seasonal MA(12) (Gaussian Distribution):
 
                 Value      StandardError    TStatistic      PValue  
                ________    _____________    __________    __________

    Constant     0.20403      0.069064         2.9542       0.0031344
    MA{1}        0.50212      0.097298         5.1606      2.4619e-07
    MA{2}       -0.20174       0.10447        -1.9312        0.053464
    SMA{12}      0.27028       0.10907          2.478        0.013211
    Variance     0.18681      0.032732         5.7073       1.148e-08

EstMdl is a new arima model that contains estimated parameters (that is, a fully specified model).

Forecast the fitted model into a 30-period horizon. Specify the estimation period data as a presample.

[YF,YMSE] = forecast(EstMdl,30,Y(1:100));

YF(15)

ans = 0.2040

YMSE(15)

ans = 0.2592

YF and YMSE are 30-by-1 vectors of forecasted responses and corresponding MSEs, respectively. The 15-period-ahead forecast is 0.2040 and its MSE is 0.2592.

Visually compare the forecasts to the holdout data.

figure
h1 = plot(Y,'Color',[.7,.7,.7]);
hold on
h2 = plot(101:130,YF,'b','LineWidth',2);
h3 = plot(101:130,YF + 1.96*sqrt(YMSE),'r:',...
		'LineWidth',2);
plot(101:130,YF - 1.96*sqrt(YMSE),'r:','LineWidth',2);
legend([h1 h2 h3],'Observed','Forecast',...
		'95% Confidence Interval','Location','NorthWest');
title(['30-Period Forecasts and Approximate 95% '...
			'Confidence Intervals'])
hold off

Forecast NASDAQ Composite Index

Open Live Script

Forecast the daily NASDAQ Composite Index over a 500-day horizon.

Load the NASDAQ data included with the toolbox, and extract the first 1500 observations.

load Data_EquityIdx
nasdaq = DataTable.NASDAQ(1:1500);

Fit an ARIMA(1,1,1) model to the data.

nasdaqModel = arima(1,1,1);
nasdaqFit = estimate(nasdaqModel,nasdaq);

 
    ARIMA(1,1,1) Model (Gaussian Distribution):
 
                  Value      StandardError    TStatistic      PValue  
                _________    _____________    __________    __________

    Constant      0.43031       0.18555          2.3191       0.020392
    AR{1}       -0.074391      0.081985        -0.90737        0.36421
    MA{1}         0.31126      0.077266          4.0284     5.6159e-05
    Variance       27.826       0.63625          43.735              0

Forecast the Composite Index for 500 days using the fitted model. Use the observed data as presample data.

[Y,YMSE] = forecast(nasdaqFit,500,nasdaq);

Plot the forecasts and 95% forecast intervals.

lower = Y - 1.96*sqrt(YMSE);
upper = Y + 1.96*sqrt(YMSE);

figure
plot(nasdaq,'Color',[.7,.7,.7]);
hold on
h1 = plot(1501:2000,lower,'r:','LineWidth',2);
plot(1501:2000,upper,'r:','LineWidth',2)
h2 = plot(1501:2000,Y,'k','LineWidth',2);
legend([h1 h2],'95% Interval','Forecast',...
	     'Location','NorthWest')
title('NASDAQ Composite Index Forecast')
hold off

The process is nonstationary, so the widths of the forecast intervals grow with time.

Forecast ARX Model

Open Live Script

Forecast the following known ARX(1) model into a 10-period forecast horizon:

$y_{t} = 1 + 0.3 y_{t - 1} + 2 x_{t} + ε_{t},$

where $ε_{t}$ is a standard Gaussian random variable, and $x_{t}$ is an exogenous Gaussian random variable with a mean of 1 and a standard deviation of 0.5.

Create an arima model object that represents the ARX(1) model.

Mdl = arima('Constant',1,'AR',0.3,'Beta',2,'Variance',1);

To forecast responses from the ARX(1) model, forecast requires:

One presample response $y_{0}$ to initialize the autoregressive term
Future exogenous data to include the effects of the exogenous variable on the forecasted responses

Set the presample response to the unconditional mean of the stationary process:

$E (y_{t}) = \frac{1 + 2 (1)}{1 - 0.3} .$

For the future exogenous data, draw 10 values from the distribution of the exogenous variable.

rng(1);
y0 = (1 + 2)/(1 - 0.3);
xf = 1 + 0.5*randn(10,1);

Forecast the ARX(1) model into a 10-period forecast horizon. Specify the presample response and future exogenous data.

fh = 10;
yf = forecast(Mdl,fh,y0,'XF',xf)

yf(3) = 3.8232 is the 3-period-ahead forecast of the ARX(1) model.

Forecast Multiple Response Paths

Open Live Script

Forecast multiple response paths from a known SAR $(1, 0, 0) {(1, 1, 0)}_{4}$ model by specifying multiple presample response paths.

Create an arima model object that represents this quarterly SAR $(1, 0, 0) {(1, 1, 0)}_{4}$ model:

$(1 - 0.5 L) (1 - 0.2 L^{4}) (1 - L^{4}) y_{t} = 1 + ε_{t},$

where $ε_{t}$ is a standard Gaussian random variable.

Mdl = arima('Constant',1,'AR',0.5,'Variance',1,...
    'Seasonality',4,'SARLags',4,'SAR',0.2)

Mdl = 
  arima with properties:

     Description: "ARIMA(1,0,0) Model Seasonally Integrated with Seasonal AR(4) (Gaussian Distribution)"
    Distribution: Name = "Gaussian"
               P: 9
               D: 0
               Q: 0
        Constant: 1
              AR: {0.5} at lag [1]
             SAR: {0.2} at lag [4]
              MA: {}
             SMA: {}
     Seasonality: 4
            Beta: [1×0]
        Variance: 1

Because Mdl contains autoregressive dynamic terms, forecast requires the previous Mdl.P responses to generate a $t$ -period-ahead forecast from the model. Therefore, the presample should contain nine values.

Generate a random 9-by-10 matrix representing 10 presample paths of length 9.

rng(1);
numpaths = 10;
Y0 = rand(Mdl.P,numpaths);

Forecast 10 paths from the SAR model into a 12-quarter forecast horizon. Specify the presample observation paths Y0.

fh = 12;
YF = forecast(Mdl,fh,Y0);

YF is a 12-by-10 matrix of independent forecasted paths. YF(j,k) is the j-period-ahead forecast of path k. Path YF(:,k) represents the continuation of the presample path Y0(:,k).

Plot the presample and forecasts.

Y = [Y0;...
     YF];

figure;
plot(Y);
hold on
h = gca;
px = [6.5 h.XLim([2 2]) 6.5];
py = h.YLim([1 1 2 2]);
hp = patch(px,py,[0.9 0.9 0.9]);
uistack(hp,"bottom");
axis tight
legend("Forecast period")
xlabel('Time (quarters)')
ylabel('Response paths')

More About

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Time Base Partitions for Forecasting

Time base partitions for forecasting are two disjoint, contiguous intervals of the time base; each interval contains time series data for forecasting a dynamic model. The forecast period (forecast horizon) is a numperiods length partition at the end of the time base during which forecast generates forecasts Y from the dynamic model Mdl. The presample period is the entire partition occurring before the forecast period. forecast can require observed responses Y0, innovations E0, or conditional variances V0 in the presample period to initialize the dynamic model for forecasting. The model structure determines the types and amounts of required presample observations.

A common practice is to fit a dynamic model to a portion of the data set, then validate the predictability of the model by comparing its forecasts to observed responses. During forecasting, the presample period contains the data to which the model is fit, and the forecast period contains the holdout sample for validation. Suppose that y_t is an observed response series; x_1,t, x_2,t, and x_3,t are observed exogenous series; and time t = 1,…,T. Consider forecasting responses from a dynamic model of y_t containing a regression component numperiods = K periods. Suppose that the dynamic model is fit to the data in the interval [1,T – K] (for more details, see estimate). This figure shows the time base partitions for forecasting.

For example, to generate forecasts Y from an ARX(2) model, forecast requires:

Presample responses Y0 = ${[\begin{matrix} y_{T - K - 1} & y_{T - K} \end{matrix}]}^{'}$ to initialize the model. The 1-period-ahead forecast requires both observations, whereas the 2-periods-ahead forecast requires y_{T –
K} and the 1-period-ahead forecast Y(1). forecast generates all other forecasts by substituting previous forecasts for lagged responses in the model.
Future exogenous data XF = $[\begin{matrix} x_{1, (T - K + 1) : T} & x_{2, (T - K + 1) : T} & x_{3, (T - K + 1) : T} \end{matrix}]$ for the model regression component. Without specified future exogenous data, forecast ignores the model regression component, which can yield unrealistic forecasts.

Dynamic models containing a moving average component or a conditional variance model can require presample innovations or conditional variances. Given enough presample responses, forecast infers the required presample innovations and conditional variances. If such a model also contains a regression component, then forecast must have enough presample responses and exogenous data to infer the required presample innovations and conditional variances. This figure shows the arrays of required observations for this case, with corresponding input and output arguments.

Algorithms

forecast sets the number of sample paths to forecast numpaths to the maximum number of columns among the presample data sets E0, V0, and Y0. All presample data sets must have either numpaths > 1 columns or one column. Otherwise, forecast issues an error. For example, if Y0 has five columns, representing five paths, then E0 and V0 can either have five columns or one column. If E0 has one column, then forecast applies E0 to each path.
NaN values in presample and future data sets indicate missing data. forecast removes missing data from the presample data sets following this procedure:
1. forecast horizontally concatenates the specified presample data sets Y0, E0, V0, and X0 such that the latest observations occur simultaneously. The result can be a jagged array because the presample data sets can have a different number of rows. In this case, forecast prepads variables with an appropriate amount of zeros to form a matrix.
2. forecast applies list-wise deletion to the combined presample matrix by removing all rows containing at least one NaN.
3. forecast extracts the processed presample data sets from the result of step 2, and removes all prepadded zeros.
forecast applies a similar procedure to the forecasted predictor data XF. After forecast applies list-wise deletion to XF, the result must have at least numperiods rows. Otherwise, forecast issues an error.
List-wise deletion reduces the sample size and can create irregular time series.
When forecast estimates MSEs YMSE of the conditional mean forecasts Y, the function treats the specified predictor data sets X0 and XF as exogenous, nonstochastic, and statistically independent of the model innovations. Therefore, YMSE reflects the variance associated with the ARIMA component of the input model Mdl alone.

Compatibility Considerations

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Univariate time series models require specification of presample response data to forecast responses

forecast now has a third input argument for you to supply presample response data.

forecast(Mdl,numperiods,Y0)
forecast(Mdl,numperiods,Y0,Name,Value)

Before R2019a, the syntaxes were:

forecast(Mdl,numperiods)
forecast(Mdl,numperiods,Name,Value)

You could optionally supply presample responses using the 'Y0' name-value pair argument.

There are no plans to remove the previous syntaxes or the 'Y0' name-value pair argument at this time. However, you are encouraged to supply presample responses because, to forecast responses from a dynamic model, forecast must initialize models containing lagged responses. Without specified presample responses, forecast initializes models by using reasonable default values, but the default might not support all workflows.

For stationary models without a regression component, all presample responses are the unconditional mean of the process, by default.
For nonstationary models or models containing a regression component, all presample responses are 0, by default.

Update Code

Update your code by specifying presample responses in the third input argument.

If you do not supply presample responses, then forecast provides default presample values that might not support all workflows.

References

[1] Baillie, R., and T. Bollerslev. “Prediction in Dynamic Models with Time-Dependent Conditional Variances.” Journal of Econometrics. Vol. 52, 1992, pp. 91–113.

[2] Bollerslev, T. “Generalized Autoregressive Conditional Heteroskedasticity.” Journal of Econometrics. Vol. 31, 1996, pp. 307–327.

[3] Bollerslev, T. “A Conditionally Heteroskedastic Time Series Model for Speculative Prices and Rates of Return.” The Review Economics and Statistics. Vol. 69, 1987, pp. 542–547.

[4] Box, G. E. P., G. M. Jenkins, and G. C. Reinsel. Time Series Analysis: Forecasting and Control 3rd ed. Englewood Cliffs, NJ: Prentice Hall, 1994.

[5] Enders, W. Applied Econometric Time Series. Hoboken, NJ: John Wiley & Sons, 1995.

[6] Engle, R. F. “Autoregressive Conditional Heteroskedasticity with Estimates of the Variance of United Kingdom Inflation.” Econometrica. Vol. 50, 1982, pp. 987–1007.

[7] Hamilton, J. D. Time Series Analysis. Princeton, NJ: Princeton University Press, 1994.

Documentation

forecast

Syntax

Description

Input Arguments

`Mdl` — Fully specified ARIMA or ARIMAX model
`arima` model

`numperiods` — Forecast horizon
positive integer

`Y0` — Presample response data
numeric column vector | numeric matrix

Name-Value Pair Arguments

`'E0'` — Presample innovations
numeric column vector | numeric matrix

`'V0'` — Presample conditional variances
positive numeric column vector | positive numeric matrix

`'X0'` — Presample predictor data
numeric matrix

`'XF'` — Forecasted or future predictor data
numeric matrix

Output Arguments

`Y` — Minimum mean square error forecasts of response data
numeric matrix

`YMSE` — Mean square errors of forecasted responses
numeric matrix

`V` — Minimum MSE forecasts of conditional variances of future model innovations
numeric matrix

Examples

Forecast Conditional Mean Response

Forecast NASDAQ Composite Index

Forecast ARX Model

Forecast Multiple Response Paths

More About

Time Base Partitions for Forecasting

Algorithms

Compatibility Considerations

Univariate time series models require specification of presample response data to forecast responses

References

See Also

Topics

Econometrics Toolbox Documentation

Support

Documentation

forecast

Syntax

Description

Input Arguments

Mdl — Fully specified ARIMA or ARIMAX model arima model

numperiods — Forecast horizon positive integer

Y0 — Presample response data numeric column vector | numeric matrix

Name-Value Pair Arguments

'E0' — Presample innovations numeric column vector | numeric matrix

'V0' — Presample conditional variances positive numeric column vector | positive numeric matrix

'X0' — Presample predictor data numeric matrix

'XF' — Forecasted or future predictor data numeric matrix

Output Arguments

Y — Minimum mean square error forecasts of response data numeric matrix

YMSE — Mean square errors of forecasted responses numeric matrix

V — Minimum MSE forecasts of conditional variances of future model innovations numeric matrix

Examples

Forecast Conditional Mean Response

Forecast NASDAQ Composite Index

Forecast ARX Model

Forecast Multiple Response Paths

More About

Time Base Partitions for Forecasting

Algorithms

Compatibility Considerations

Univariate time series models require specification of presample response data to forecast responses

References

See Also

Topics

Econometrics Toolbox Documentation

Support

`Mdl` — Fully specified ARIMA or ARIMAX model
`arima` model

`numperiods` — Forecast horizon
positive integer

`Y0` — Presample response data
numeric column vector | numeric matrix

`'E0'` — Presample innovations
numeric column vector | numeric matrix

`'V0'` — Presample conditional variances
positive numeric column vector | positive numeric matrix

`'X0'` — Presample predictor data
numeric matrix

`'XF'` — Forecasted or future predictor data
numeric matrix

`Y` — Minimum mean square error forecasts of response data
numeric matrix

`YMSE` — Mean square errors of forecasted responses
numeric matrix

`V` — Minimum MSE forecasts of conditional variances of future model innovations
numeric matrix