A machine learning approach to univariate time series forecasting of quarterly earnings

Abstract We propose our quarterly earnings prediction (QEP SVR ) model, which is based on epsilon support vector regression (ε-SVR), as a new univariate model for quarterly earnings forecasting. This follows the recommendations of Lorek (Adv Account 30:315–321, 2014. 10.1016/j.adiac.2014.09.008 ), who notes that although the model developed by Brown and Rozeff (J Account Res 17:179–189, 1979) (BR ARIMA) is advocated as still being the premier univariate model, it may no longer be suitable for describing recent quarterly earnings series. We conduct empirical studies on recent data to compare the predictive accuracy of the QEP SVR model to that of the BR ARIMA model under a multitude of conditions. Our results show that the predictive accuracy of the QEP SVR model significantly exceeds that of the BR ARIMA model under 24 out of the 28 tested experiment conditions. Furthermore, significance is achieved under all conditions considering short forecast horizons or limited availability of historic data. We therefore advocate the use of the QEP SVR model for firms performing short-term operational planning, for recently founded companies and for firms that have restructured their business model.