Forecasting High-Dimensional Time Series via One-Sided Dynamic Principal Components
Ezequiel Smucler
FCEyN-UBA

We define one-sided dynamic principal components (ODPC) for time series as linear combinations of the present and past values of the series that minimize the reconstruction mean squared error. It is shown that the ODPC can be successfully used for forecasting high-dimensional multiple time series. An alternating least squares algorithm to compute the proposed ODPC is presented. We prove that for stationary and ergodic time series the estimated values converge to their population analogues. We also that prove that asymptotically, when both the number of series and the sample size go to infinity, if the data follows a dynamic factor model, the reconstruction obtained with ODPC converges, in mean squared error, to the common part of the factor model. Monte Carlo results shows that forecasts obtained by the ODPC compare favorably with other forecasting methods based on dynamic factor models.