Estimation of prediction error in time series

Summary The accurate estimation of prediction errors in time series is an important problem, which has immediate implications for the accuracy of prediction intervals as well as the quality of a number of widely used time series model selection criteria such as the Akaike information criterion. Except for simple cases, however, it is difficult or even impossible to obtain exact analytical expressions for one-step and multi-step predictions. This may be one of the reasons that, unlike in the independent case (see Efron, 2004), up to now there has been no fully established methodology for time series prediction error estimation. Starting from an approximation to the bias-variance decomposition of the squared prediction error, a method for accurate estimation of prediction errors in both univariate and multivariate stationary time series is developed in this article. In particular, several estimates are derived for a general class of predictors that includes most of the popular linear, nonlinear, parametric and nonparametric time series models used in practice, with causal invertible autoregressive moving average and nonparametric autoregressive processes discussed as lead examples. Simulations demonstrate that the proposed estimators perform quite well in finite samples. The estimates may also be used for model selection when the purpose of modelling is prediction.