Filtering and prediction of noisy and unstable signals: The case of Google Trends data

Livio Fenga

Journal of Forecasting, 2020, vol. 39, issue 2, 281-295

Abstract: Google Trends data is a dataset increasingly employed for many statistical investigations. However, care should be placed in handling this tool, especially when applied for quantitative prediction purposes. Being by design Internet user dependent, estimators based on Google Trends data embody many sources of uncertainty and instability. They are related, for example, to technical (e.g., cross‐regional disparities in the degree of computer alphabetization, time dependency of Internet users), psychological (e.g., emotionally driven spikes and other form of data perturbations), linguistic (e.g., noise generated by double‐meaning words). Despite the stimulating literature available today on how to use Google Trends data as a forecasting tool, surprisingly, to the best of the author's knowledge, it appears that to date no articles specifically devoted to the prediction of these data have been published. In this paper, a novel forecasting method, based on a denoiser of the wavelet type employed in conjunction with a forecasting model of the class SARIMA (seasonal autoregressive integrated moving average), is presented. The wavelet filter is iteratively calibrated according to a bounded search algorithm, until a minimum of a suitable loss function is reached. Finally, empirical evidence is presented to support the validity of the proposed method.

Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jforec:v:39:y:2020:i:2:p:281-295

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