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A Novel Decomposition-Ensemble Based Carbon Price Forecasting Model Integrated with Local Polynomial Prediction

Quande Qin, Huangda He, Li Li and Ling-Yun He
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Quande Qin: Shenzhen University
Huangda He: Shenzhen University
Li Li: Shenzhen University

Computational Economics, 2020, vol. 55, issue 4, No 11, 1249-1273

Abstract: Abstract This study proposes a decomposition-ensemble based carbon price forecasting model, which integrates ensemble empirical mode decomposition (EEMD) with local polynomial prediction (LPP). The EEMD method is used to decompose carbon price time series into several components, including some intrinsic mode functions (IMFs) and one residue. Motivated by the fully local characteristics of a time series decomposed by EEMD, we adopt the traditional LPP and regularized LPP (RLPP) to forecast each component. This led to two forecasting models, called the EEMD-LPP and EEMD-RLPP, respectively. Based on the fine-to-coarse reconstruction principle, an auto regressive integrated moving average (ARIMA) approach is used to forecast the high frequency IMFs, and LPP and RLPP is applied to forecast the low frequency IMFs and the residue. The study also proposes two other forecasting models, called the EEMD-ARIMA-LPP and EEMD-ARIMA-RLPP. The empirical study results showed that the EEMD-LPP and EEMD-ARIMA-LPP outperform the two other models. Furthermore, we examine the robustness and effects of parameter settings in the proposed model. Compared with existing state-of-art approaches, the results demonstrate that EEMD-ARIMA-LPP and EEMD-LPP can achieve higher level and directional predictions and higher robustness. The EEMD-LPP and EEMD-ARIMA-LPP are promising approaches for carbon price forecasting.

Keywords: Carbon price forecasting; Ensemble empirical mode decomposition; Decomposition-ensemble framework; Local polynomial prediction (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s10614-018-9862-1

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