Improving Stock Price Prediction Using Combining Forecasts Methods

This study presents an outcome of pursuing better and effective forecasting methods. The study primarily focuses on the effective use of divide-and-conquer strategy with Empirical Mode Decomposition or briefly EMD algorithm. We used two different statistical methods to forecast the high-frequency EMD components and the low-frequency EMD components. With two statistical forecasting methods, ARIMA (Autoregressive Integrated Moving Average) and EWMA (Exponentially Weighted Moving Average), we investigated two possible and potential hybrid methods: EMD-ARIMA-EWMA, EMD-EWMA-ARIMA based on high and low-frequency components. We experimented with these methods and compared their empirical results with four other forecasting methods using five stock market daily closing prices from the S&P/TSX 60 Index of Toronto Stock Exchange. This study found better forecasting accuracy from EMD-ARIMA-EWMA than ARIMA, EWMA base methods and EMD-ARIMA as well as EMD-EWMA hybrid methods. Therefore, we believe frequency-based effective method selection in EMD-based hybridization deserves more research investigation for better forecasting accuracy.