Recently Discrete Wavelet Transform (DWT) has led to a tremendous surge in many domains of science and engineering. In this study, we present the advantage of DWT to improve time series forecasting precision. This article suggests a novel technique of forecasting by segregating a time series dataset into linear and nonlinear components through DWT. At first, DWT is used to decompose the in-sample training dataset of the time series into linear (detailed) and non-linear (approximate) parts. Then, the Autoregressive Integrated Moving Average (ARIMA) and Artificial Neural Network (ANN) models are used to separately recognize and predict the reconstructed detailed and approximate components, respectively. In this manner, the proposed approach tactically utilizes the unique strengths of DWT, ARIMA, and ANN to improve the forecasting accuracy. Our hybrid method is tested on four real-world time series and its forecasting results are compared with those of ARIMA, ANN, and Zhang's hybrid models. Results clearly show that the proposed method achieves best forecasting accuracies for each series.
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