Forecasting financial time series using singular spectrum analysis

Abstract

Financial time series are big arrays of information on quotes and trading volumes of shares, currencies and other exchange and over-the-counter instruments. The analysis and forecasting of such series has always been of particular interest for both research analysts and practicing investors. However, financial time series have their own features, which do not allow one to choose the only correct and well-functioning forecasting method. Currently, machine-learning algorithms allow one to analyze large amounts of data and test the resulting models. Modern technologies enable testing and applying complex forecasting methods that require volumetric calculations. They make it possible to develop the mathematical basis of forecasting, to combine different approaches into a single method. An example of such a modern approach is the Singular Spectrum Analysis (SSA), which combines the decomposition of a time series into a sum of time series, principal component analysis and recurrent forecasting. The purpose of this work is to analyze the possibility of applying SSA to financial time series. The SSA method was considered in comparison with other common methods for forecasting financial time series: ARIMA, Fourier transform and recurrent neural network. To implement the methods, a software algorithm in the Python language was developed. The method was also tested on the time series of quotes of Russian and American stocks, currencies and cryptocurrencies.