836 IEEE TRANSACTIONS ON SYSTEMS, MAN, AND CYBERNETICSPART B: CYBERNETICS, VOL. 37, NO.
4, AUGUST 2007
A Multivariate Heuristic Model for Fuzzy
Time-Series Forecasting
Kun-Huang Huarng, Member, IEEE, Tiffany Hui-Kuang Yu, and Yu Wei Hsu
AbstractFuzzy time-series models have been widely applied
due to their ability to handle nonlinear data directly and because
no rigid assumptions for the data are needed. In addition, many
such models have been shown to provide better forecasting re-
sults than their conventional counterparts. However, since most
of these models require complicated matrix computations, this
paper proposes the adoption of a multivariate heuristic function
that can be integrated with univariate fuzzy time-series models
into multivariate models. Such a multivariate heuristic function
can easily be extended and integrated with various univariate
models. Furthermore, the integrated model can handle multiple
variables to improve forecasting results and, at the same time,
avoid complicated computations due to the inclusion of multiple
variables.
Index TermsFinancial data processing, forecasting, fuzzy
systems.
I. I NTRODUCTION
T IME SERIES has long been an interesting research topic,
and various models have been proposed. More recently,
fuzzy time-series models, which are based on fuzzy sets, have
been advanced to enhance the models forecasting capabilities
and applicability. They have been favored over the conventional
models because they can handle nonlinear data directly [12] and
because rigid assumptions regarding the data are not needed
[19]. These models have been applied to various problem
domains, such as enrollment [1], [5], [6], [10], [11], [15],
[17], [18], inventory [10], temperature [3], the stock index [5],
[6], [8], [9], [10], [21], [22], etc., and many of them have
been shown to provide better forecasting results than their
conventional counterparts [1], [3], [4], [15], [17][19].
These fuzzy time-series models range from order-1 autore-
gression (AR(1)), order-p autoregression (AR(p)) [2], [7], and
bivariate [4] models to multivariate [20] models. However,
since most of these models require complicated matrix com-
Manuscript received March 14, 2006; revised September 16, 2006. This work
was supported in part by the National Science Council, Taiwan, under Grant
NSC 94-2416-H-035-002. This paper was recommended by Associate Editor
X. Wang.
K.-H. Huarng is with the Department of International Trade, Feng Chia
University, Taichung 40724, Taiwan, R.O.C. (e-mail: khhuarng@fcu.edu.tw).
T. H.-K. Yu is with the Department of Public Finance, Feng Chia University,
Taichung 40724, Taiwan, R.O.C. and also with the Office of International
Affairs, Feng Chia University, Taichung 40724, Taiwan, R.O.C. (e-mail:
hkyu@fcu.edu.tw).
Y. W. Hsu is with the Department of Business Administration, Feng
Chia University, Taichung 40724, Taiwan, R.O.C. (e-mail: sudv9999@
yahoo.com.tw).
Color versions of one or more of the figures in this paper are available online
at http://ieeexplore.ieee.org.
Digital Object Identifier 10.1109/TSMCB.2006.890303
1083-4419/$25.00 2007 IEEE
putations, it does not seem feasible to extend these univariate
models into multivariate ones, or to apply the multivariate
models directly, especially when there are many fuzzy sets.
A heuristic model was previously proposed to integrate
heuristics with fuzzy time-series models to improve forecasting
results [5]. While the heuristics provided the possible moving
trends of the data to assist in the forecasting and also did not
intermingle with the calculations of the fuzzy relationships,
the integrated model was able to apply more variables and
thereby avoid the problems associated with complicated matrix
computations. One restriction, however, was that the heuristic
model was limited to one heuristic variable.
This paper intends to propose a multivariate heuristic func-
tion, which can be integrated with univariate fuzzy time-series
models to form a multivariate model. The purpose of this in-
tegration is to extend the applicability of the univariate models
to accommodate multiple variables and to improve forecasting
results. The Taiwan stock index is used as the forecasting target
to demonstrate the models application.
The remainder of this paper is organized as follows.
Section II briefly reviews the fuzzy time-series, computational
complexity, and heuristic models. Section III introduces the
multivariate heuristic function. Section IV integrates the frame-
work with a fuzzy time-series model and applies the integrated
model to stock index forecasting. Section V compares all
the empirical results. Finally, Section VI wraps up this paper
and discusses some other possible setups for the multivariate
heuristic models.
II. R EVIEW OF F UZZY T IME S ERIES
A. Denitions
Let U be the universe of discourse, where U = {u1 ,
u2 , . . . , ub }. A fuzzy set Ai of U is defined as Ai =
fAi (u1 )/u1 + fAi (u2 )/u2 + + fAi (ub )/ub , where fAi is
the membership function of the fuzzy set Ai ; fAi : U [0, 1].
Hence, fAi (ua ) is the degree of belongingness of ua to Ai ;
fAi (ua ) [0, 1] and 1 a b.
Denition 1: Y (t)(t = . . . , 0, 1, 2, . . .) is a subset of real
numbers. Let Y (t) be the universe of discourse defined by the
fuzzy set fi (t). If F (t) consists of fi (t)(i = 1, 2, . . .), F (t) is
defined as a fuzzy time series on Y (t)(t = . . . , 0, 1, 2, . . .) [16].
Following Definition 1, fuzzy relationships between two
consecutive observations can be defined.
Denition 2: If there exists a fuzzy relationship R(t 1, t),
such that F (t) = F (t 1) R(t 1, t), where represents
an operation, then F (t) is said to be caused by F (t 1).
HUARNG et al.: MULTIVARIATE HEURISTIC MODEL FOR FUZZY TIME-SERIES FORECASTING
Denition 3: Let F (t 1) = Ai and F (t) = Aj . The rela-
tionship between two consecutive data (called a fuzzy logical
relationship, FLR [1]), i.e., F (t) and F (t 1), can be denoted
by Ai Aj , where Ai is called the left-hand side (LHS), and
Aj is the right-hand side (RHS) of the FLR.
Song and Chissom [15] proposed a fuzzy time-series model
that laid a foundation for the subsequent studies, including steps
such as: 1) to define the universe of discourse and intervals;
2) to fuzzify; 3) to establish fuzzy relationships; and 4) to
forecast. Among these studies, Chen proposed a model based
on arithmetic operations [1]. The fuzzy relationship was estab-
lished by putting the same LHSs of the FLRs together into FLR
groups (FLRGs). For example, there are FLRs with the same
LHSs (Ai ), i.e.,
Ai Aj1
Ai Aj2
....
These FLRs can be grouped into an FLRG as Ai Aj1 ,
Aj2 , . . .. Furthermore, the FLRGs can be used for forecasting
later. For the purpose of explanation, a multivariate heuristic
function is integrated with Chens model due to its simplicity in
terms of calculation.
B. Computational Complexity of Conventional Models
Song and Chissom introduced a univariate fuzzy time series,
where the fuzzy relationships are expressed as [15]
F (t) = F (t 1) R(t, t 1)
where denotes a maxmin operator; F (t) and F (t 1) are
the fuzzy sets at time t and t 1, respectively; and R(t, t 1)
is a union of first-order fuzzy relationships.
Subsequently, some other univariate models were proposed
by replacing the maxmin operators with other operators [11],
[17], [18]. However, similar to the maxmin operator, many of
them involved matrix computations. These computations would
become very complicated, especially when the number of fuzzy
sets becomes large.
By extending Song and Chissoms univariate model [15],
the bivariate [4] and multivariate [20] models were even more
complex and required more computations. Hence, when the
number of fuzzy sets becomes large, these models may become
not so applicable. On the other hand, by applying the concept in
[5], the proposed model can avoid the hurdle that those models
with matrix computations faced. In other words, the proposed
model can be applied to even the problems with large numbers
of fuzzy sets.
C. Heuristic Models
Huarng first proposed a heuristic fuzzy time-series model [5].
Then, two high-order heuristic models extended that model to
forecast different targets: the stock index [7] and future [13]
targets. However, both models are univariate models. In the
837
high-order models, the LHSs of the FLRs are changed from
(Ai ) to (Ai1 , Ai2 , Ai3 , . . .). Accordingly, the FLRs are also
changed to
Ai1 , Ai2 , Ai3 , . . . Aj1
Ai1 , Ai2 , Ai3 , . . . Aj2
....
Then, these FLRs can be grouped into an FLRG as
Ai1 , Ai2 , Ai3 , . . . Aj1 , Aj2 , . . . .
Another study [14] applied that concept in [5] and the
matrix operator to forecast enrollment, which was a univariate
and first-order model. The forecasting model was proposed as
follows:
F (t) = F (t 1) R(t, t 1) h
where is a matrix multiplication operator, and h is the
heuristic matrix.
As discussed, the model is only applicable to problems with
limited amounts of fuzzy sets.
This paper extends the heuristic model [5] to propose a model
with heuristic knowledge generated from multiple heuristic
variables. First, the proposed model does not involve any matrix
computations. In addition, the calculations of heuristics in
the model do not intermingle with the calculations of fuzzy
relationships. As a result, the proposed model requires fewer
computations. On the other hand, the proposed model allows
multiple heuristic variables and is expected to outperform the
univariate fuzzy time-series model [5].
III. M ULTIVARIATE H EURISTIC F UNCTION
Suppose we can forecast F (t) using F (t 1) and
F (t 1) = Aj . The FLRG with Aj as the LHS is described
as follows:
Aj Aj1 , Aj2 , . . . .
We propose a multivariate heuristic function as follows:
h (g(x1 , x2 , . . .); Aj1 , Aj2 , . . .) = Ap1 , Ap2 , . . .
where x1 , x2 , . . . are heuristic variables, and g() is a heuristic
function that shows the future possible movement of observa-
tions. Meanwhile, h() is a function that chooses proper fuzzy
sets Ap1 , Ap2 , . . . from Aj1 , Aj2 , . . ., where Ap1 , Ap2 , . . .
Aj1 , Aj2 , . . ., depending on the results from g().
The process of the multivariate heuristic function is illus-
trated by the following algorithm. Its purpose is to select proper
fuzzy sets from the FLRGs for better forecasting results.
A. Algorithm of the Multivariate Heuristic Function
(a) Determine the threshold for each heuristic variable.
The thresholds are used to screen out the heuristic values that
do not significantly affect the results of the forecast.
838 IEEE TRANSACTIONS ON SYSTEMS, MAN, AND CYBERNETICSPART B: CYBERNETICS, VOL. 37, NO. 4, AUGUST 2007
(a.1) Take the average of the differences in the in-sample
data for each heuristic variable xi , i.e.,
diff (xi (d)) = |(xi (t) xi (t s))| (1)


k1
diff (xi (d))
d=1
average(xi ) = (2)
k1
where t is the time slot in the in-sample data,
s is the time lag, and k is the total number of
differences.
(a.2) Round the average to obtain the threshold. Due to
the possible different scales in the heuristic vari-
ables, different bases are chosen to round the trivial
values. Heuristics can be very helpful to determine
the proper values. Note that the threshold is always
positive, i.e.,
 
average(xi )
th(xi ) = rounddown + 1 Bi (3)
Bi
where Bi is the base for each heuristic variable xi .
(b) Define the rules for each heuristic variable.
For the out-of-sample forecasting, some simple rules are
established for each heuristic variable xi . The difference must
be larger than the threshold or less than the negative threshold;
otherwise, it is considered to have no impact on the result.
Accordingly, if the difference positively affects the result, it is
marked as positive; if it negatively affects the result, it is marked
as negative; otherwise, it is considered to have no impact.
There are many cases regarding how the increment or decre-
ment may affect the forecasting result. One simple case is that
the increment (which is larger than the threshold) positively
affects the result, and the decrement (which is less than the
negative threshold) negatively affects the result. Each heuristic
variable xi is assigned as being positive, no impact, and nega-
tive. The rules can be defined as follows:
H-Rule 1. If xi (t) xi (t s) > th(xi ), then the difference
is positive.
H-Rule 2. If xi (t) xi (t s) < th(xi ), then the difference
is negative.
H-Rule 3. If th(xi ) xi (t) xi (t s) th(xi ), then
there is no impact.
For the other cases, the rules can be adjusted as required.
(c) Define the heuristic table.
Suppose there are m heuristic variables. We can establish
an m-dimensional heuristic table. However, when m becomes
large, the table will become difficult to conceptualize. Some
intuitive rules are defined to realize the table as follows, where
three indications are used: upward, downward, and unchanged.
Upward suggests that the movement of the observation is up;
downward is down; and unchanged means that it remains at
about the same level.
T-Rule 1. If #(positive) > #(negative), then it is upward.
T-Rule 2. If #(positive) < #(negative), then it is
downward.
T-Rule 3. If #(positive) = #(negative), then it is
unchanged.
#(positive) and #(negative) are the numbers of positive
and negative variables among all the heuristic variables,
respectively.
(d) Choose fuzzy sets.
According to the heuristic table, we can choose proper fuzzy
sets from the RHSs of the FLRGs as follows: When the move-
ment is upward, we pick those fuzzy sets that are larger than
F (t 1), i.e., Aj ; and when the movement is downward, we
pick those which are smaller than Aj ; otherwise, we pick all
the RHSs.
F-Rule 1. If g(x1 , x2 , . . .) = upward, then h(g(x1 , x2 , . . .);
Aj1 , Aj2 , . . .) = h (upward; Aj1 , Aj2 , . . .) =
Ap1 , Ap2 , . . ., where p1 , p2 , . . . j.
F-Rule 2. If g(x1 , x2 , . . .) = downward, then h(g(x1 ,
x2 , . . .); Aj1 , Aj2 , . . .) = h (downward; Aj1 ,
Aj2 , . . .) = Ap1 , Ap2 , . . ., where p1 , p2 , . . . j.
F-Rule 3. If g(x1 , x2 , . . .) = unchanged, then h(g(x1 ,
x2 , . . .); Aj1 , Aj2 , . . .) = h (unchanged; Aj1 ,
Aj2 , . . .) = Aj1 , Aj2 , . . ..
IV. A PPLICATIONS
We integrate the multivariate heuristic function with Chens
model [1] and apply the integrated model to the forecasting. To
illustrate the multivariate heuristic model, the stock index for
the year 2001 is used to explain the process. One, two, and three
heuristic variables are applied, respectively. The multivariate
function can be applied to a single-variable function; however,
we skip the illustration involving single heuristic variables
and only list their forecasting results. We instead explain the
application of two and three heuristic variables. Furthermore,
because many of the steps in the forecasting process are similar
for different numbers of heuristic variables, we only list those
for two heuristic variables.
A. Data
The forecasting target is the daily data of the Taiwan stock
index, with the forecasting being conducted in each year from
2000 to 2004. In each year, the data from January to October
are used to establish fuzzy relationships, whereas those from
November and December are used for out-of-sample forecast-
ing. In addition, we apply daily data from NASDAQ (USA),
Dow Jones (USA), and M1b (Taiwan), respectively, as heuristic
variables to assist in the selection of proper fuzzy sets for
forecasting.
B. Two Heuristic Variables
Step 1: Universe of discourse and intervals.
The minimal and maximal stock indexes for the year 2001 are
3446.26 and 6104.24, respectively. Hence, the universe of dis-
course is defined as [3400, 6200]. As in the previous studies [7],
[13], [22], we set the length of the intervals as 100. Therefore,
HUARNG et al.: MULTIVARIATE HEURISTIC MODEL FOR FUZZY TIME-SERIES FORECASTING 839

TABLE I TABLE II
FUZZY STOCK INDEX FLRS

there are intervals u1 u28 , where u1 = [3400, 3500], u2 =

[3500, 3600], u3 = [3600, 3700], . . . , u28 = [6100, 6200].
Step 2: Fuzzification.
Following the definition in the previous studies [1], [15],
[16], each fuzzy set Ai (i = 1, 2, . . . , 28) is represented as
follows [1], [15], [16]:

A1 = 1/u1 + 0.5/u2 + 0/u3 + 0/u4 + 0/u5

+ + 0/u24 + 0/u25 + 0/u26 + 0/u27 + 0/u28
A2 = 0.5/u1 + 1/u2 + 0.5/u3 + 0/u4 + 0/u5
+ + 0/u24 + 0/u25 + 0/u26 + 0/u27 + 0/u28

A28 = 0/u1 + 0/u2 + 0/u3 + 0/u4 + 0/u5
+ + 0/u24 + 0/u25 + 0/u26 + 0.5/u27 + 1/u28 . The stock index on 2001/10/29 was 4065.1 (A7 ), and the stock
index on 2001/10/30 was 3915.61 (A6 ). A fuzzy relationship is
Only the fuzzy set with the maximal degree of membership is established as
used as the fuzzified fuzzy set [3], [15]. For example, the stock
index was 4935.28 on 2001/1/2, which can be fuzzified to A16 .
A7 A6 .
Similarly, the stock index was 4894.79 on 2001/1/3, which can
be fuzzified to A15 . Table I lists some of the fuzzified stock
indexes. Some FLRs for the year 2001 are listed in Table II.
Step 3: Fuzzy relationships. By means of the aforementioned FLRs, we can establish a
From the fuzzy stock index in Table I, we can proceed to corresponding FLRG as follows:
establish FLRs. For example, the stock index on 2001/7/24 was
4040.77 (A7 ), and the stock index on 2001/7/25 was 4136.39 A7 A8 , A7 , A6 .
(A8 ). A fuzzy relationship is established as
All the FLRGs are listed in Table III.
A7 A8 .
Step 4: Multivariate heuristic function.
Similarly, the stock index on 2001/10/26 was 4043.57 (A7 ), and We apply two heuristic variables for illustration, namely
the stock index on 2001/10/29 was 4065.1 (A7 ). Another fuzzy 1) the NASDAQ (N ) and 2) the Dow Jones (D).
relationship is established as (a) Determine the threshold for this variable.
(a.1) Take the average of the differences in the in-sample
A7 A7 . data (from January to October 2001) for N . We set
840 IEEE TRANSACTIONS ON SYSTEMS, MAN, AND CYBERNETICSPART B: CYBERNETICS, VOL. 37, NO. 4, AUGUST 2007

TABLE III TABLE IV

FLRGS TWO-VARIABLE HEURISTIC TABLE

(b) Define the rules for each heuristic variable. We can then
define the rules for N as follows:
H-Rule 1. If N (t 1) N (t 2) > 50, then it is
positive.
H-Rule 2. If N (t 1) N (t 2) < 50, then it is
negative.
H-Rule 3. If 50 N (t 1) N (t 2) 50, then
there is no impact.
Likewise, the rules for D are as follows:
H-Rule 1. If D(t 1) D(t 2) > 110, then it is
positive.
H-Rule 2. If D(t 1) D(t 2) < 110, then it is
negative.
H-Rule 3. If 110 D(t 1) D(t 2) 110, then
there is no impact.
(c) Define the heuristic table. Because there are two heuristic
variables, we need to establish a 2-D heuristic table,
where each heuristic variable has three terms, namely:
1) positive; 2) no impact; and 3) negative, as shown in
Table IV. The table can be transformed into the rules as
follows:
T-Rule 1. If #(positive) > #(negative), then it is
upward.
T-Rule 2. If #(positive) < #(negative), then it is
downward.
the time lag as 1 for all cases in this paper. We can T-Rule 3. If #(positive) = #(negative), then it is
calculate th(N ) and th(D) as follows: unchanged.
#(positive) and #(negative) are the numbers of positive
diff(N (d)) = |(N (t) N (t 1))| and negative variables among all the heuristic variables,
average(N ) = 44.61 respectively.
diff(D(d)) = |(D(t) D(t 1))| (d) Choose fuzzy sets. Following Table IV, or the T-Rules,
average(D) = 104.56. we can choose proper fuzzy sets as follows:
F-Rule 1. If g(N, D) = upward, then h(g(N, D); Aj1 ,
(a.2) Round the average to obtain the threshold. We set Aj2 , . . .) = h(upward; Aj1 , Aj2 , . . .) Ap1 ,
the base by heuristic for both the NASDAQ and Ap2 , . . ., where p1 , p2 , . . . j.
Dow Jones as 10, i.e., F-Rule 2. If g(N, D) = downward, then h(g(N, D);Aj1 ,
  Aj2 , . . .) = h(downward; Aj1 , Aj2 , . . .) =
average(N )
th(N ) = rounddown + 1 10 Ap1 , Ap2 , . . ., where p1 , p2 , . . . j.
10 F-Rule 3. If g(N, D) = unchanged, then h(g(N, D);
 
44.61 Aj1 , Aj2 , . . .) = h(unchanged; Aj1 ,
= rounddown + 1 10 = 50
10 Aj2 , . . .) = Aj1 , Aj2 , . . ..
 
average(D) Table V lists the differences in the heuristic variables
th(D) = rounddown + 1 10
10 NASDAQ, Dow Jones, and M1b . In the table, some of the slots
 
104.56 under the NASDAQ and Dow Jones are empty, which means
= rounddown + 1 10 = 110.
10 that there were no transactions on those days. Hence, we fill in
HUARNG et al.: MULTIVARIATE HEURISTIC MODEL FOR FUZZY TIME-SERIES FORECASTING 841

TABLE V
DIFFERENCES IN HEURISTIC VARIABLES

0 as the differences. An example is used to illustrate the process
in what follows.
[2001/11/2]: The Taiwan stock index was 3929.69 (A6 )
on 2001/11/1. From Table III, the FLRG for A6 is seen to
be A6 A4 , A5 , A7 , A6 . From Table V, the NASDAQ was
1746.3 and 1690.2 on 2001/11/1 and 2001/10/31, respectively.
The difference in the NASDAQ was 56.1, which is larger than
the th(N ), i.e., 50. Meanwhile, the Dow Jones was 9263.9
and 9075.14 on 2001/11/1 and 2001/10/31, respectively. The
difference in the Dow Jones was 188.76, which is larger than
the th(D), i.e., 110.
Both the NASDAQ and Dow Jones positively affect the
Taiwan stock index. From looking at Table IV, the Taiwan stock
index is considered to have moved upward on 2001/11/2.
Hence, from F-Rule 1, h(upward; A4, A5, A6, A7) = A6, A7.
Step 5: Forecasting.
We forecast F (t) by F (t 1). If F (t 1) = Ai , the fore-
casting can be conducted as follows [1]:
If Aj , the forecasting of F (t) is the midpoint
of ui .
If Aj Aj1 , the forecasting of F (t) is the midpoint
of uj1 .
842 IEEE TRANSACTIONS ON SYSTEMS, MAN, AND CYBERNETICSPART B: CYBERNETICS, VOL. 37, NO. 4, AUGUST 2007

TABLE VI TABLE VII

FORECASTING RESULTS BASED ON SINGLE HEURISTIC VARIABLES FORECASTING RESULTS BASED ON TWO HEURISTIC VARIABLES

variable heuristic functions are compared in Tables VI and VII,

If Aj Aj1 , Aj2 , . . . , Apk , the forecasting of F (t) respectively.
is equal to the arithmetic average of the midpoints of
uj1 , uj2 , . . . , ujk . C. Three Heuristic Variables
We also choose NASDAQ (N ), Dow Jones (D), and M1b
[2001/11/2]: The multivariate heuristic function is
(M ) as heuristic variables.
h(upward; A4, A5, A6, A7) = A6, A7. Therefore, the forecast
(a) Determine the threshold for each variable. We have calcu-
of 2001/11/2 is equal to the arithmetic average of the midpoint
lated the average for N and D. Similarly, we can calculate
of u6 , u7 , i.e.,
the average for M , i.e.,
(a.1)
3950 + 4050
Forecast = = 4000.
2 diff(M (d)) = |(M (t)M(t1))| , average(M )= 9151.69.

The out-of-sample forecasting results based on the vari- (a.2) Round the average to obtain the threshold. We have
ous single-variable heuristic functions as well as the two- calculated the thresholds for N and D, which are 50
HUARNG et al.: MULTIVARIATE HEURISTIC MODEL FOR FUZZY TIME-SERIES FORECASTING 843

TABLE VIII
FORECASTING RESULTS BASED ON THREE HEURISTIC VARIABLES

Fig. 1. Three-dimensional heuristic table, where n, u, and p represent nega-

tive, no impact, and positive, respectively. The shaded block consisting of three
ps is regarded as upward, three ns as downward, and only one p and one n
as unchanged. Meanwhile, the blocks consisting of two ps and one n should
have also been regarded as upward. Similarly, the case of one p and two ns
should have been regarded as downward, and so on.

and 100, respectively. We set the base for both M1b

as 1000. Furthermore, we calculate the threshold as
follows:
 
9151.69
th(M ) = rounddown + 1 1000 = 1000.
1000

(b) Define the rules for each heuristic variable. In addition to

the rules for two heuristic variables, we propose the rules
for M1b (M ) as follows:
H-Rule 1. If M (t 1) M (t 2) > 10 000, then it is
positive.
H-Rule 2. If M (t 1) M (t 2) < 10 000, then it
is negative.
H-Rule 3. If 10 000 M (t1)M (t 2) 10 000,
then there is no impact.
(c) Define the heuristic table. There are three heuristic vari-
ables. Hence, we can establish a 3-D heuristic table,
where each heuristic variable, i.e. N , D, and M , with the
three terms, i.e., positive, no impact, and negative, is as
shown in Fig. 1. The rules are the same as those for the
two heuristic variables.
(d) Choose fuzzy sets. Similar to that for the two heuristic
variables, we apply the heuristic function to three heuris-
tic variables to choose proper fuzzy sets. An example is
used to illustrate the process as follows.

[2001/11/21]: The Taiwan stock index was 5309.1

(A11 ) on 2001/11/20. From Table III, the FLRG for
A11 is A11 A10 , A12 , A11 , A10 . From Table V, the
The out-of-sample forecasting results based on the
difference in the NASDAQ is 53.91, which is less
three-variable heuristic function are listed in Table VIII.
than the negative th(N ), i.e., 50. The difference in the
Dow Jones is 75.08, which is between 110 and 110.
Furthermore, the difference in the M1b is 12 505, which is
V. E MPIRICAL A NALYSIS
larger than the th(M ), i.e., 10 000. The number of pos-
itives is 1, which is equal to the number of negatives, We conduct the forecasting by using one, two, and three
which is also 1. According to T-Rule 3, the Taiwan stock variables as heuristic variables, respectively. By using one
index was considered to be unchanged on 2001/11/21. variable, the root-mean-square (rms) error is 136.49 for the
Hence, from F-Rule 3, h(unchanged; A10, A11, A12) = NASDAQ (N ) alone. Meanwhile, the rms errors are 138.25
A10, A11, A12. and 133.26 for the Dow Jones and M1b , respectively. These
844 IEEE TRANSACTIONS ON SYSTEMS, MAN, AND CYBERNETICSPART B: CYBERNETICS, VOL. 37, NO. 4, AUGUST 2007
TABLE IX
RMS ERRORS BY YEAR
Fig. 2. Comparison of rms errors.
rms errors are compared in Table VI. We find that all these rms
errors are less than Chens rms error.
By using two variables, the rms error is 131.98 for the
NASDAQ (N ) and Dow Jones (D) as heuristic variables and
128.44 for the NASDAQ (N ) and M1b . These rms errors are
compared in Table VII. The forecasting rms error is 124.02
when we apply three heuristic variables. When compared with
Tables VI and VII, we find that the rms error is the smallest.
We also conduct similar forecasting for the years ranging
from 2000 to 2004. The rms errors for each year based on
various numbers of heuristic variables are compared in Table IX
and depicted in Fig. 2. For the single heuristic variable, it can
be clearly seen that all of them outperform Chens model (in
all cases except M1b in 2002). Among these single heuristic
variables, the NASDAQ performs the best. For the two heuristic
variables, both outperform Chens model in all cases, too. In
addition, two heuristic variables outperform the single heuristic
variable in many cases. By comparing the sum of the rms error,
these two heuristic variables outperform the various single
heuristic variables.
The forecasts of the three heuristic variables are listed in
Fig. 3. In terms of the application of the three heuristic vari-
ables, it is found to outperform Chens model in all cases.
Meanwhile, it also outperforms the two heuristic variables in
many cases. As for the sum of the rms errors, the application
of the three heuristic variables performs the best of all. All
the sums of the rms errors are listed in Table IX and depicted
in Fig. 4.
VI. C ONCLUSION AND F UTURE W ORK
A. Conclusion
This paper proposes a framework for a multivariate heuristic
function and integrates that function with a fuzzy time-series
model in a multivariate heuristic model setting. Different num-
bers of variables are applied in the heuristic function to forecast
the Taiwan stock index. The application of the multivariate
heuristic function does not mix with the calculation of fuzzy
relationships and can reduce the computational complexity. The
forecasting results show that the application of the multivariate
heuristic model can really improve the forecasting results.
The multivariate heuristic function calculates the heuristic
variables first and then applies the results to select proper fuzzy
sets for the fuzzy relationships. Hence, although Chens fuzzy
time-series model [1] is chosen as the integrating target, the
proposed multivariate heuristic function can be integrated with
other univariate fuzzy time-series models. The integration of the
multivariate heuristic function with the fuzzy time-series model
is seamless. In addition, the impacts of the heuristic variables
on the forecasts can be traced in a straightforward manner. As
HUARNG et al.: MULTIVARIATE HEURISTIC MODEL FOR FUZZY TIME-SERIES FORECASTING
Fig. 3. Forecasts of the tree heuristic variables.
Fig. 4. Comparison of the sum of rms errors.
a result, the proposed multivariate heuristic model can be used
to improve forecasting.
The multivariate heuristic model is implemented with some
simple setups, including the possible mapping values for each
heuristic variable, the rules, the heuristic table, and so on.
Nevertheless, the setups can be easily adjusted or extended
for different contexts. Furthermore, the multivariate heuristic
model can be extended for problems with more than three
variables. The T-Rules in the model can easily be used to
determine the future movements of the forecasted variables.
Comparing with the matrix computation, the computation load
is greatly reduced in the proposed model.
B. Future Work
In the proposed algorithm, some simple setups are applied.
However, the algorithm can also be implemented in a more
complicated way. For example, when we define the rules for
the heuristic variables, we apply crisp comparisons. We can
extend the rules into fuzzy rules. Meanwhile, the increment (or
decrement) of a heuristic variable may affect the forecast either
positively or negatively, depending on the domains. Hence, the
rules should be adjusted accordingly. Furthermore, there are
845
only three terms (i.e., positive, negative, and no impact) that
are defined for each heuristic variable. Of course, the number
of terms can increase to express more conditions.
To define the heuristic table, each variable is treated as being
of equal weight in this paper. In a more complicated context,
various weights can be assigned to different heuristic variables.
In this case, the table should be revised accordingly. Then, the
heuristic table may consist of different rules from those in this
paper. In particular, when we apply fuzzy rules, the table will
become a fuzzy rule base. As a result, the table may become
very sophisticated.
ACKNOWLEDGMENT
The authors would like to thank the Associate Editor and the
anonymous referees for their valuable comments and sugges-
tions, which helped in the revision of this paper.
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Tiffany Hui-Kuang Yu received the B.A. degree
in economics from the National Taiwan Univer-
sity, Taipei, Taiwan, R.O.C., in 1986 and the M.S.
and Ph.D. degrees in economics from Texas A&M
University, College Station, in 1989 and 1994,
respectively.
Since 1994, she has been with the Department
of Public Finance, Feng Chia University, Taichung,
Taiwan, where she also served as the Chair of the
Department from 2000 to 2002. She is currently a
Professor and the Dean of Office of International
Affairs, Feng Chia University. Her current research interests include public
finance, fuzzy time series, data mining, and financial forecasting.
Yu Wei Hsu received the M.S. degree in business
administration from Feng Chia University, Taichung,
Taiwan, R.O.C., in 2006.
He is currently with the Department of Business
Administration, Feng Chia University, Taichung,
Taiwan. He specializes in the fields of finance and
strategy planning.

Kun-Huang Huarng (M93) received the B.S. de-

gree in electronic engineering from Chung Yuan
Christian University, Chungli, Taiwan, R.O.C.,
in 1984 and the M.S. and Ph.D. degrees in
computer science from Texas A&M University,
College Station, in 1989 and 1993, respectively.
He was with the Chaoyang University of Tech-
nology, Taichung, Taiwan, during 19952001, where
he was an Associate Professor in the Department
of Finance and the Director of the Library. He has
been with the Department of International Trade,
Feng Chia University, Taichung, since 2001, where he has been a Professor
since 2002. Since then, he served as the Director of Electronic Commerce
Research Institute and the Associate Dean of the College of Business and is
currently the Director of the Library. He serves as the Coeditor of the Journal of
Economics and Management; the Associate Editor of the Journal of Modelling
in Management, the Advances in Doctoral Research in Management, and the
International Journal of Culture, Tourism and Hospitality Research; and a
Coguest Editor of the Portuguese Journal of Management Studies. His current
research interests include fuzzy time series, data mining, financial forecasting,
and e-commerce.