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Expert Systems with Applications 42 (2015) 3868–3874

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Expert Systems with Applications


journal homepage: www.elsevier.com/locate/eswa

Time series forecasting based on wavelet filtering


Tae Woo Joo 1, Seoung Bum Kim ⇑
School of Industrial Management Engineering, Korea University, Anam-Dong, Seongbuk-Gu, Seoul 136-713, Republic of Korea

a r t i c l e i n f o a b s t r a c t

Article history: Forecasting time series data is one of the most important issues involved in numerous applications in real
Available online 20 January 2015 life. Time series data have been analyzed in either the time or frequency domains. The objective of this
study is to propose a forecasting method based on wavelet filtering. The proposed method decomposes
Keywords: the original time series into the trend and variation parts and constructs a separate model for each part.
ARIMA Simulation and real case studies were conducted to examine the properties of the proposed method
Forecasting under various scenarios and compare its performance with time series forecasting models without wave-
Time series
let filtering. The results from both simulated and real data showed that the proposed method based on
Wavelet transforms
wavelet filtering yielded more accurate results than the models without wavelet filtering in terms of
mean absolute percentage error criterion.
Ó 2015 Elsevier Ltd. All rights reserved.

1. Introduction To address the limitations of Fourier transforms, wavelet trans-


forms that are localized in both the time and frequency domains
A time series is a set of observations collected over time (Lai (Mallat, 1989) have been proposed (Morettin, 1996, 1997;
et al., 2010). The analysis of time series data is one of the most Mousa, Munib, & Moussa, 2005; Percival & Walden, 1999;
important areas in statistics in both theory and application. The Priestley, 1996). More specifically, because wavelet basis functions
main objective of time series analysis is to obtain inherent struc- exist over a finite time limit and are typically irregular and asym-
tural characteristics, such as autocorrelations, trends, and seasonal metric, they are better suited for those time series analyses that
variations, and to use this information to formulate an appropriate exhibit sharp discontinuities and local behavior (Graps, 1995).
mathematical model for analysis and prediction (Anderson, 1971). Many prediction approaches based on wavelet transforms have
In general, time series data can be analyzed in either the time or been developed recently (Chen, 2014; Nguyen, Khosravi,
frequency domains. The most widely used methods in analyzing Creighton, & Nahavandi, 2015). Nguyen et al. (2015) presents a
the time domain include time series regression, decomposition combination of wavelet features with fuzzy standard additive
methods, exponential smoothing, and the Box–Jenkins autoregres- model for medical diagnosis. In general, if a time series is non-
sive integrated moving average (Li, Gai, Kang, Wu, & Wang, 2014). stationary, it is difficult to determine a relevant global model. For
Analyses in the frequency domain are usually conducted for example, Hydrological time series forecasting is a difficult task
periodic and cyclical observations. The methodologies of the fre- because of its complicated nonlinear, non-stationary and multi-
quency domain are based on Fourier transforms that allow us to scale characteristics (Di, Yang, & Wang, 2014). To overcome this
determine the number of frequency components and detect the problem, local models based on wavelet transforms have been pro-
dominant cyclic frequency, all of which are embedded in the time posed (Weigend & Mangeas, 1995; Zhang, Coggins, Jabri, Dersch, &
domain. However, Fourier transforms-based methods have limita- Flower, 2001). In addition, it is known that wavelet transforms
tions in that they require an assumption of stationarity and pro- have the potential to increase the accuracy of time series predic-
duce no information associated with time (Croarkin & Tobias, tions (Ramsey, 1999; Schlüter & Deuschle, 2010). Once forecasting
2006; Popoola, 2007; Tabak and Feitosa, 2010). Further, Fourier models using wavelet transforms succeeded in eliminating noise
transforms do not work well in large data, and thus, they can be before preceding to construct a model (Alrumaih & Al-Fawzan,
implemented only on an interval between 0 and 2p (Tran, 2006). 2002), improvement in overall forecasting performance followed
(Chou, 2014; Ferbar, Čreslovnik, Mojškerc, & Rajgelj, 2009).
Other approaches that use wavelet transforms estimate compo-
⇑ Corresponding author. Tel.: +82 2 3290 3397; fax: +82 2 929 5888.
nents in a structural time series model (Arino, 1995; Sang, 2013;
E-mail addresses: mrblond002@gmail.com (T.W. Joo), sbkim1@korea.ac.kr
Wong, Wai-Cheung, Zhongjie, & Lui, 2003; Zhang et al., 2001).
(S.B. Kim).
1
Tel.: +82 2 3290 3769. Arino (1995) proposed a methodology that used wavelet

http://dx.doi.org/10.1016/j.eswa.2015.01.026
0957-4174/Ó 2015 Elsevier Ltd. All rights reserved.
T.W. Joo, S.B. Kim / Expert Systems with Applications 42 (2015) 3868–3874 3869

Z Z
transforms to decompose time series into long-term trends and
/ðtÞdx ¼ 1 wðtÞdx ¼ 0 /ðtÞ; wðtÞ 2 L2 ðRÞ;
seasonal components. Specifically, let y = {yt : t = 1, . . ., T} be a time
series set. y is decomposed into two sets z1 = {z1t : t = 1, . . ., T} and
where j and k denote, respectively, the scaling parameter and trans-
z2 = {z2t : t = 1, . . ., T}, that is, y ¼ z1 þ z2 , where z1 and z2 , respec-
lation index. L2 ðRÞ is the space of square integrable real function
tively, represent long-term trends and seasonal behavior. Each
defined on the real line R. The data can be decomposed into the fol-
component is used to construct an appropriate model, and total
lowing wavelet series form:
prediction accuracy can be obtained by aggregating the prediction
results from each component model. However, the generalizability X
n X
J X
n
of this method is questionable because Arino’s method considered yðtÞ ¼ cj;k /j;k ðtÞ þ dj;k wj;k ðtÞ; ð2Þ
only limited cases such as long-term trends and seasonal k¼1 j¼1 k¼1

variations.
where cj;k represents the approximation coefficient at scale j and
Moreover, some methods applied linear or nonlinear predictive
location k; J is the decomposition level; dj;k represents the detail
models to wavelet coefficients (approximation and detail coeffi-
coefficient at scale j and location k; and n is the size of the time ser-
cients) at each level, and the final prediction was obtained by
ies data. Reconstruction can also be done through Mallet’s pyramid
inverting the predicted wavelet coefficients. Renaud, Starck, and
algorithm (Burt & Adelson, 1983). Fig. 1 shows an example of the
Murtagh (2002) introduced the multiscale autoregressive models
overall process of decomposition and reconstruction by wavelet
that use Haar wavelets and scale coefficients during decomposition.
transforms.
A method that combines nonlinear models with wavelet coeffi-
In Fig. 1, cj;k represents the coarse approximation (trend and
cients has also been proposed (Chen, Qian, & Meng, 2013; Hadaś-
seasonality) and dj;k represents detailed information (noise or ran-
Dyduch, 2014; Rocha, Paredes, Carvalho, Henriques, & Harris,
dom fluctuation). The difference between the first level approxi-
2010; Soltani, 2002; Wang, 2014). Chen, Nicolis, and Vidakovic
mation coefficients c1;k and original series y yields the detail
(2010) classified the wavelet coefficients into trend, seasonal, and
coefficients of the first level d1;k : To obtain c2;k ; c1;k is approximated
high frequency components and used them to construct forecasting
by a set of basis functions. As can be seen from Fig. 1, when the
models based on exponential smoothing, harmonic regression, and
level becomes higher, cj;k represents the overall pattern of the ori-
autoregressive moving average with exogenous input (ARMAX)
ginal series.
model. However, these methods involve a high computational load
because they considered each level of a series. Moreover, consider-
ing each level of series could cause an overfitting problem. 3. Proposed forecasting method
In this paper, we propose a forecasting method that uses wave-
let filtering. Through wavelet transforms, the series is partitioned 3.1. Data decomposition through wavelet filtering
into two parts (trends and variations). We then construct a sepa-
rate model for each part. By this partitioning, the proposed method Our proposed method consists of three steps: (1) wavelet trans-
is especially useful for the time series with a large amount of noise. forms to decompose the data in the trend part (TP) and variation
The potential overfitting problem of this approach caused by using part (VP), (2) determination of the optimal decomposition level,
two separate models is addressed by adjusting the decomposition and (3) construction of forecasting models. First, wavelet trans-
levels. forms are conducted to the original time series data to obtain the
The rest of this paper is organized as follows. In Section 2, we same number of coefficients as the size of the data. Further, deno-
briefly introduce the basic concept of wavelet transforms. In ising that shrinks the empirical detail wavelet coefficients toward
Section 3, we present our proposed forecasting approach based zero is performed to remove noise. We used soft thresholding in
on wavelet filtering. Section 4 presents a simulation study to this study (Donoho & Johnstone, 1994). A wavelet filtering method
examine the properties of the proposed method and evaluate its is used to partition the data into the TP and VP (Chang and Yadama,
performance under various scenarios. Section 4.2 presents the 2010). More precisely, the TP can be obtained by setting all the
experimental results from real-life problems. Finally, Section 5 detail coefficients at all levels dj;k ðj ¼ 1; . . . ; JÞ to zero while main-
contains our concluding remarks. taining all coarse approximation coefficients, cj;k ðj ¼ 1; . . . ; JÞ. Simi-
larly, the VP can be obtained by setting all the coarse
2. Wavelet transforms approximation coefficients at the last level, cJ;k to zero while main-
taining all detail coefficients. The TP and VP can be considered the
Wavelets have the advantages of the locality of the analysis and overall trend and variation information in a time series. Fig. 2
their ability to handle multiscale information efficiently. Numer- shows how a series can be decomposed into the TP and VP by
ous studies of wavelets have been conducted in the fields of sig- wavelet filtering. Note that in this paper, we used Daubechies
nal/image processing (Meerwald & Uhl, 2001; Prasad & Iyengar, wavelets as a basis function whose scale and detail wavelets are
1997; Rao & Bopardikar, 1998; Subasi, 2007; Avci & Derya, 2008), shown in Fig. 3.
statistics (Abramovich, Bailey, & Sapatinas, 2000; Antoniadis,
1999; Vidakovic, 1999), and manufacturing processes (Guo, 3.2. Choosing the optimal decomposition level
Linyan, Gang, & Song, 2008; Jeong, Lu, & Wang, 2006; Jin & Shi,
2001; Lada, Lu, & Wilson, 2002; Saravanan & Ramachandran, For modeling, the dataset is divided into training (80%), valida-
2009). Although Fourier transforms give only the frequency infor- tion (10%), and testing (10%) sets. The training set is used to create
mation of given data, wavelet transforms can simultaneously deli- a model, and the testing set is used to evaluate the model. The val-
ver both the time and frequency localizations (Mallat, 1989). idation set is used to select the optimal parameters for the decom-
Wavelet transforms are conducted from wavelet basis functions position level of wavelet transforms. To determine an adequate
that consist of a scale wavelet part /ðtÞ and a detail part wðtÞ: decomposition level, we varied the number of levels for both the
TP and VP from one to six until the model delivered the best accu-
/j;k ðtÞ ¼ 2j=2 /ð2j t  kÞ; racy in terms of the minimum mean absolute percentage error
(MAPE). We believe a potential overfitting problem by using two
separate models (TP and VP) can be addressed by adjusting the
wj;k ðtÞ ¼ 2j=2 wð2j t  kÞ; ð1Þ
decomposition levels in the wavelet transforms.
3870 T.W. Joo, S.B. Kim / Expert Systems with Applications 42 (2015) 3868–3874

Fig. 1. A process of decomposition and reconstruction by wavelet transforms.

Fig. 2. Trend and variation parts by wavelet filtering.

Fig. 3. Daubechies 2 wavelets.

3.3. Forecasting modeling study is an autoregressive integrated moving average (ARIMA)


model that is defined as follows:
Once the time series is decomposed into the TP and VP at its
optimal decomposition levels, we constructed the forecasting
rd yt ¼ /1 y1 þ /2 y2 þ    þ /p ytp þ at  h1 at1  h2 at2    
model for each part. The forecasting model that we used in this  hq atq ð3Þ
T.W. Joo, S.B. Kim / Expert Systems with Applications 42 (2015) 3868–3874 3871

The order of an ARIMA model can be represented by the notation


ARIMA (p, d, q), where p, d, and q are, respectively, the order of
the autoregressive, integrated, and moving average parts of the
model. Because ARIMA models require an assumption of stationa-
rity, we used an augmented Dickey–Fuller test to check whether
or not the series is stationary (Dickey & Fuller, 1979). If the test indi-
cates that the series is nonstationary, we first difference the series.
The augmented Dickey–Fuller test is implemented for the differ-
enced series; if the series is still nonstationary, we again first differ-
ence the differenced series. The above process is repeated until the
series is stationary. For data with seasonality, we used seasonal
ARIMA (SARIMA) models that can take seasonal variations into
account. ARIMA (or SARIMA) models for the TP and VP are sepa-
rately determined based on penalty function statistics such as
Akaike’s Information Criterion (Wang, Kang, Shen, Chang, &
Chung, 2010). Finally, total prediction accuracy can be obtained
by aggregating the prediction results from each of the TP and VP
models.

4. Simulation

4.1. Simulation data

We conducted a simulation to evaluate the performance of the


proposed method based on wavelet filtering and compared it
with the ARIMA and SARIMA models without wavelet filtering.
In our simulation study, we considered the time series with and
without seasonal variations. Fig. 4 shows eight examples of time
series data that exhibit increasingly linear trends without sea-
sonal variations ((1)–(4)) and with seasonal variations ((5)–(8)).
We generated different noise levels from the normal distributions
with mean zeros and four different standard deviations (r = 5, 10,
20 and 30).
In the examples of seasonality, we generated the dataset by
using a function that combines sine and cosine. The total data size
was 132, with a period of 12. To measure the performance of our
methods, we ran 200 replications and calculated MAPE, which
can be computed by the following equation:
n  
1X ^
yi  yi   100; Fig. 4. Time series data with linearly increasing trend with different amounts of
MAPE ¼ ð4Þ
n i¼1  yi  noise: (1), (5): r = 5; (2), (6): r = 10; (3), (7): r = 20; (4), (8): r = 30.

where yi and y ^i are, respectively, the actual and predicted values.


Table 1 shows the average values of MAPE from 200 experi-
Table 1
ments between ARIMA (or SARIMA) models without wavelet filter- Comparative results between ARIMA (or SARIMA) and the proposed method for
ing and from the proposed procedure that constructs ARIMA (or simulated datasets. The values inside parentheses indicate the standard deviations of
SARIMA) models with wavelet filtering. The values inside the MAPE.
parenthesis indicate standard deviations. The results showed that Scenario ARIMA (or SARIMA) models ARIMA (or SARIMA) models
for all scenarios but one (scenario 1) the proposed forecasting pro- without wavelet filtering with wavelet filtering
cedure yielded smaller MAPEs for the testing set than the ARIMA (proposed method)
(or SARIMA) models did. We can see that for the datasets with a (1) 2.11 (1.18) 2.12 (0.66)
small amount of noise (scenarios 2, 5, 6), the proposed procedure (2) 4.75 (2.08) 4.29 (1.35)
was more accurate, but not to a significant degree. However, for (3) 8.73 (2.76) 7.51 (1.79)
(4) 12.33 (3.40) 11.28 (2.5)
scenarios with a large amount of noise (scenarios 3, 4, 7, 8), the
(5) 1.95 (0.44) 1.59 (0.38)
proposed procedure yielded significantly better prediction accu- (6) 3.90 (0.94) 3.07 (0.68)
racy than pure ARIMA (or SARIMA) models. These simulation (7) 7.84 (1.92) 6.09 (1.34)
results clearly demonstrated the usefulness of the proposed proce- (8) 12.28 (3.83) 9.30 (1.91)
dure for forecasting.

4.2. Case study variations. The last three datasets (Net Profit, Passengers, Max
Power) exhibit seasonal variations. To identify the relevant periods
In this section we demonstrated the applicability of the pro- of the time series with seasonal variations, we used Fourier trans-
posed forecasting method by using eight real life datasets. Table 2 forms. The Viscosity dataset contains the daily viscosity of chemi-
shows a set of time series plots of the dataset. The values under the cal product XR-22. DVD contains a weekly sales market, and Towel
name of the dataset indicate the size of the data. The first five data- contains the weekly sales of absorbent paper towels. These three
sets (Viscosity, DVD, Towel, KOSPI, and House) lack seasonal datasets are available in the book ‘‘Forecasting, Time Series, and
3872 T.W. Joo, S.B. Kim / Expert Systems with Applications 42 (2015) 3868–3874

Table 2
A set of time series plots of eight real datasets. The values under the name of the dataset indicate the size of the data.

No. Datasets Plot No. Datasets Plot


1 Viscosity (150) 42
5 House (143) 200

40 190

180
38
170
36
160
34
150
32
140

30
130

28 120

26 110

24 100
0 50 100 150 0 50 100 150

2 DVD (161) 90
6 Net Profit (120) 1100

1000
80
900
70
800

60 700

600
50
500
40
400

30 300

200
20 0 20 40 60 80 100 120
0 20 40 60 80 100 120 140 160 180

3 Towel (120) 20
7 Passengers (132) 2.2
x 10
6

2
15

1.8

10
1.6

1.4
5
1.2

0 1

0.8

-5
0 20 40 60 80 100 120 0.6
0 20 40 60 80 100 120 140

4 KOSPI (273) 1.6


x 10
6
8 Max Power (365) 8000

7500
1.55

7000
1.5

6500
1.45

6000
1.4

5500
1.35

5000
1.3

4500
1.25

4000
1.2 0 50 100 150 200 250 300 350
0 50 100 150 200 250 300

Regression: An Applied Approach (Fourth Edition)’’ (Bowerman, (Lee, 2009). The Passengers data exhibits seasonal variations with
O’Connell, & Koehler, 2005). KOPSI contains a series of stock prices a period of 12 and contains the monthly number of passengers at
from the Korea Exchange (KRX, http://www.krx.co.kr). The House Jeju International Airport from January 2003 to December 2013;
dataset contains the monthly house prices for first time buyers this dataset can be obtained from the Korea Airports Corporation
from February 2002 to December 2013 in the UK and were (http://www.airport.co.kr). Max Power contains the daily maxi-
obtained from the Office for National Statistics website (http:// mum electricity demand in 2013 in South Korea. This dataset con-
www.ons.gov.uk). The Net Profit dataset exhibits a linearly increas- tains a seasonal pattern with the period of 7 and can be obtained
ing trend with seasonal variations (period 12) that is available in from the Electric Power Statistics Information System (http://
the book ‘‘Statistical Methods for Prediction (Second Edition)’’ www.kpx.or.kr).

Table 3
The comparative results of MAPE between the ARIMA (or SARIMA) models with and without wavelet filtering.

Data ARIMA models without wavelet filtering ARIMA models with wavelet filtering (proposed method)
Parameters MAPE (%) Parameters MAPE (%)
Optimal decomposition level TP VP
Viscosity (0, 0, 2) 4.81 3 (2, 0, 0) (2, 0, 1) 5.09
DVD (2, 1, 1) 5.38 3 (2, 1, 1) (2, 0, 2) 4.02
Towel (0 ,1, 1) 6.64 4 (2, 2, 2) (2, 0, 1) 6.03
KOSPI (2, 1, 2) 2.88 5 (2, 2, 2) (2, 0, 1) 2.47
House (1, 1, 1) 3.19 2 (2, 2, 2) (2, 0, 1) 2.44
Net Profit (0, 2, 2) (0, 2, 2)s = 12 6.55 4 (2, 2, 2) (0, 2, 2) (0, 2, 2)s = 12 4.83
Passengers (2, 2, 2) (0, 2, 2)s = 12 13.21 4 (2, 2, 2) (2, 2, 2) (0, 2, 2)s = 12 11.13
Max Power (2, 2, 2) (0, 2, 2)s = 7 11.02 5 (2, 1, 2) (1, 0, 1) (0, 2, 2)s = 7 7.85
T.W. Joo, S.B. Kim / Expert Systems with Applications 42 (2015) 3868–3874 3873

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