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European Journal of Operational Research
Volume 179, Issue 2, 1 June 2007, Pages 459-468
 
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doi:10.1016/j.ejor.2006.03.039    How to Cite or Link Using DOI (Opens New Window)
Copyright © 2006 Elsevier B.V. All rights reserved.

Stochastics and Statistics

A hyperspherical transformation forecasting model for compositional data

Huiwen Wanga, E-mail The Corresponding Author, Qiang Liub, E-mail The Corresponding Author, Henry M.K. Mokc, Corresponding Author Contact Information, E-mail The Corresponding Author, Linghui Fua and Wai Man Tsed, e, E-mail The Corresponding Author

aSchool of Economics and Management, Beijing University of Aeronautics and Astronautics, Beijing 100083, China bSchool of Mechanical Engineering and Automation, Beijing University of Aeronautics and Astronautics, Beijing 100083, China cDepartment of Decision Sciences, and Managerial Economics, The Chinese University of Hong Kong Shatin, NT, Hong Kong dSchool of Business, Hong Kong Baptist University, Kowloon Tong, Kowloon, Hong Kong eDepartment of Finance, Chu Hai College of Higher Education, Tsuen Wan, NT, Hong Kong

Received 3 June 2004; 
accepted 9 March 2006. 
Available online 12 June 2006.

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Abstract

Although Aitchison’s [Aitchison, J., 1986. The Statistical Analysis of Compositional Data, Chapman and Hall, London] method of logratio transformation of compositional data is widely used in various domains, it is limited by the assumption of a strict non-negativity of the components and the requirement of special treatments in practice of the zero components. We propose a dimension-reduction approach through a hyperspherical transformation that is capable of resolving the difficulty in maintaining non-negativity and unit-sum in forecasting compositional data over time. Applying the proposed model to a numerical simulation with a 4D compositional data embedded with zero components and forecasting the three production sectors in the Chinese economy both demonstrate the usefulness and validity of the new approach.

Keywords: Forecasting; Data Analysis; Compositional Data Analysis

Article Outline

1. Introduction
2. The DRHT forecasting model for compositional data
2.1. The issue
2.2. The DRHT forecasting model
2.3. Comparison with the logratio transformation
3. Applications
3.1. Empirical simulation with zero components
3.2. Forecasting the trend of the primary, secondary, and tertiary components in the Chinese economy
4. Conclusions
Acknowledgements
Appendix A. Dimensionality reduction through hyperspherical transformation
References






 
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