Nowcasting using regression on signatures

Samuel N. Cohen; Giulia Mantoan; Lars Nesheim; Áureo de Paula; Arthur Turrell; Lingyi Yang

Paper

Nowcasting using regression on signatures

Abstract

We introduce a new method of nowcasting using regression on path signatures. Path signatures capture the geometric properties of sequential data. Because signatures embed observations in continuous time, they naturally handle mixed frequencies and missing data. We prove theoretically, and with simulations, that regression on signatures subsumes the linear Kalman filter and retains desirable consistency properties. Nowcasting with signatures is more robust to disruptions in data series than previous methods, making it useful in stressed times (for example, during COVID-19). This approach is performant in nowcasting US GDP growth, and in nowcasting UK unemployment.