Traditional versus novel forecasting techniques: How much do we gain?

This article applies two novel techniques to forecast the value of US manufacturing shipments over the period 1956-2000: wavelets and support vector machines (SVM). Wavelets have become increasingly popular in the fields of economics and finance in recent years, whereas SVM has emerged as a more user-friendly alternative to artificial neural networks. These two methodologies are compared with two well-known time series techniques: multiplicative seasonal autoregressive integrated moving average (ARIMA) and unobserved components (UC). Based on forecasting accuracy and encompassing tests, and forecasting combination, we conclude that UC and ARIMA generally outperform wavelets and SVM. However, in some cases the latter provide valuable forecasting information that it is not contained in the former.