I've done a test using ARMA model on some financial series. It turns out the prediction rate is really very bad – close to half time correct and half time wrong…
I am new to ARMA model so what I tried is very simple, following the textbook of deciding (p,q) for ARMA model by ACF and PACF first, and then use half data to do regression and half data to do test.
I often heard that weather forecasting is used time series model. And in my daily experience, I feel it is pretty good forecasting.
I wonder why the weather forecast could be done so great?
Also, if I want to push my toy ARMA model to next level, what is the direction that I should put into effort ?
There are good answers below, so I am summarize it a little up :
- From a systematic point of view, market as a system is evolving, while weather is more stable from one year to another (truth doesn't change).
- Market is more complicated in some sense, while weather is ruled by physics laws (more understood structure).
- Weather is more periodic, which adds to the predictability.