Forecasting Multivariate Time Series with the Theta Method |
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Authors: | Dimitrios D Thomakos Konstantinos Nikolopoulos |
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Institution: | 1. Department of Economics, University of Peloponnese, Tripolis, Greece;2. Bangor Business School, College Road, Prifysgol Bangor University, Wales, UK |
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Abstract: | In this study building on earlier work on the properties and performance of the univariate Theta method for a unit root data‐generating process we: (a) derive new theoretical formulations for the application of the method on multivariate time series; (b) investigate the conditions for which the multivariate Theta method is expected to forecast better than the univariate one; (c) evaluate through simulations the bivariate form of the method; and (d) evaluate this latter model in real macroeconomic and financial time series. The study provides sufficient empirical evidence to illustrate the suitability of the method for vector forecasting; furthermore it provides the motivation for further investigation of the multivariate Theta method for higher dimensions. Copyright © 2015 John Wiley & Sons, Ltd. |
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Keywords: | Theta method univariate multivariate time series unit roots vector forecasting |
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