Batch and incremental dynamic factor machine learning for multivariate and multi-step-ahead forecasting

Most multivariate forecasting methods in the literature are restricted to vector time series of low dimension, linear methods and short horizons. Big data revolution is instead shifting the focus to problems (e.g., issued from the IoT technology) characterized by very large dimension, nonlinearity and long forecasting horizons. This paper discusses and compares a set of state-of-the-art methods which could be promising in tackling such challenges. Also, it proposes DFML, a machine-learning version of the dynamic factor model, a successful forecasting methodology well-known in econometrics. The DFML strategy is based on a out-of-sample selection of the nonlinear forecaster, the number of latent components and the multi-step-ahead strategy. We will discuss both a batch and an incremental version of DFML, and we will show that it can consistently outperform state-of-the-art methods in a number of Synthetic and real forecasting tasks.