More on Automatic Forecasting Packages – Autobox Gold Price Forecasts

Yesterday, my post discussed the statistical programming language R and Rob Hyndman’s automatic forecasting package, written in R – facts about this program, how to download it, and an application to gold prices.

In passing, I said I liked Hyndman’s disclosure of his methods in his R package and “contrasted” that with leading competitors in the automatic forecasting market space –notably Forecast Pro and Autobox.

This roused Tom Reilly, currently Senior Vice-President and CEO of Automatic Forecast Systems – the company behind Autobox.

62_tom

Reilly, shown above, wrote  –

You say that Autobox doesn’t disclose its methods.  I think that this statement is unfair to Autobox.  SAS tried this (Mike Gilliland) on the cover of his book showing something purporting to a black box.  We are a white box.  I just downloaded the GOLD prices and recreated the problem and ran it. If you open details.htm it walks you through all the steps of the modeling process.  Take a look and let me know your thoughts.  Much appreciated!

AutoBox Gold Price Forecast

First, disregarding the issue of transparency for a moment, let’s look at a comparison of forecasts for this monthly gold price series (London PM fix).

A picture tells the story (click to enlarge).

ABFPHcomp

So, for this data, 2007 to early 2011, Autobox dominates. That is, all forecasts are less than the respective actual monthly average gold prices. Thus, being linear, if one forecast method is more inaccurate than another for one month, that method is less accurate than the forecasts generated by this other approach for the entire forecast horizon.

I guess this does not surprise me. Autobox has been a serious contender in the M-competitions, for example, usually running just behind or perhaps just ahead of Forecast Pro, depending on the accuracy metric and forecast horizon. (For a history of these “accuracy contests” see Markridakis and Hibon’s article on M3).

And, of course, this is just one of many possible forecasts that can be developed with this time series, taking off from various ending points in the historic record.

The Issue of Transparency

In connection with all this, I also talked with Dave Reilly, a founding principal of Autobox, shown below.

DaveReilly

Among other things, we went over the “printout” Tom Reilly sent, which details the steps in the estimation of a final time series model to predict these gold prices.

A blog post on the Autobox site is especially pertinent, called Build or Make your own ARIMA forecasting model? This discussion contains two flow charts which describe the process of building a time series model, I reproduce here, by kind permission.

The first provides a plain vanilla description of Box-Jenkins modeling.

Rflowchart1

The second flowchart adds steps revised for additions by Tsay, Tiao, Bell, Reilly & Gregory Chow (ie chow test).

Rflowchart2

Both start with plotting the time series to be analyzed and calculating the autocorrelation and partial autocorrelation functions.

But then additional boxes are added for accounting for and removing “deterministic” elements in the time series and checking for the constancy of parameters over the sample.

The analysis run Tom Reilly sent suggests to me that “deterministic” elements can mean outliers.

Dave Reilly made an interesting point about outliers. He suggested that the true autocorrelation structure can be masked or dampened in the presence of outliers. So the tactic of specifying an intervention variable in the various trial models can facilitate identification of autoregressive lags which otherwise might appear to be statistically not significant.

Really, the point of Autobox model development is to “create an error process free of structure.” That a Dave Reilly quote.

So, bottom line, Autobox’s general methods are well-documented. There is no problem of transparency with respect to the steps in the recommended analysis in the program. True, behind the scenes, comparisons are being made and alternatives are being rejected which do not make it to the printout of results. But you can argue that any commercial software has to keep some kernel of its processes proprietary.

I expect to be writing more about Autobox. It has a good track record in various forecasting competitions and currently has a management team that actively solicits forecasting challenges.

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