Disaggregation & aggregation of time series components: A hybrid forecasting approach using generalized regression neural networks and the theta method

A hybrid forecasting method is proposed which leverages from statistical and neural network techniques to perform multi-step ahead forecasting. The proposed method is based on the disaggregation of time series components, the prediction of each component individually and the reassembling of the extrapolations to obtain an estimation for the global data. The STL decomposition procedure from the literature [5] is implemented to obtain the seasonal, trend and irregular components of the time series, whilst Generalized Regression Neural Networks (GRNN) [12] are used to perform out-of sample extrapolations of the seasonal and residual components. The univariate Theta model is employed for the estimation of the directional component. The application of the GRNN is based on the dynamic calibration of the training process for each of the seasonal and irregular components individually. The proposed hybrid forecasting method is applied to 60 time series from the NN3 competition and 227 time series from the M1 Competition dataset, to obtain 18 out-of sample predictions. The results from the application demonstrate that the proposed method can outperform standard statistical techniques in the literature. One of the main contributions of the current research lies in the investigation of the strengths and weaknesses of the GRNN in extrapolating structural components of time series.