Signal Diffusion Mapping: Optimal Forecasting with Time-Varying Lags

We introduce a new methodology for forecasting, which we call signal diffusion mapping. Our approach accommodates features of real‐world financial data which have been ignored historically in existing forecasting methodologies. Our method builds upon well‐established and accepted methods from other areas of statistical analysis. We develop and adapt those models for use in forecasting. We also present tests of our model on data in which we demonstrate the efficacy of our approach.