A hybrid forecasting approach using ARIMA models and self-organising fuzzy neural networks for capital markets

Linear time series models, such as the autoregressive integrated moving average (ARIMA) model, are among the most popular statistical models used to forecast time series. In recent years non-linear computational models, such as artificial neural networks (ANN), have been shown to outperform traditional linear models when dealing with complex data, like financial time series. This paper proposes a novel hybrid forecasting model which exploits the linear modelling strengths of the ARIMA model, and the flexibility of a self-organising fuzzy neural network (SOFNN). The system´s performance is evaluated using several datasets, and our results indicate that a hybrid system is an effective tool for time series forecasting.