Applying nonlinear generalized autoregressive conditional heteroscedasticity to compensate ANFIS outputs tuned by adaptive support vector regression

Abstract Volatility clustering degrades the efficiency and effectiveness of time series prediction and gives rise to large residual errors. This is because volatility clustering suggests a time series where successive disturbances, even if uncorrelated, are yet serially dependent. To overcome volatility clustering problems, an adaptive neuro-fuzzy inference system (ANFIS) is combined with a nonlinear generalized autoregressive conditional heteroscedasticity (NGARCH) model that is tuned by adaptive support vector regression (ASVR) so as to tackle the problem of time-varying conditional variance in residual errors. The proposed method significantly reduces large residual errors in forecasts because volatility clustering effects are regulated to trivial levels. Two experiments using real financial data series compare the proposed method and a number of well-known alternative methods. Results show that forecasting performance by the proposed method produces superior results, with good speed of computation. Goodness of fit of the proposed method is tested by Ljung–Box Q-test. It is concluded that the ANFIS/NGARCH composite model tuned by ASVR performs very well for improved predictive accuracy of irregular non-periodic short-term time series forecast and will be of interest to the science of statistical prediction of time series.