A hyperspherical transformation forecasting model for compositional data

Although Aitchison’s [Aitchison, J., 1986. The Statistical Analysis of Compositional Data, Chapman and Hall, London] method of logratio transformation of compositional data is widely used in various domains, it is limited by the assumption of a strict non-negativity of the components and the requirement of special treatments in practice of the zero components. We propose a dimension-reduction approach through a hyperspherical transformation that is capable of resolving the difficulty in maintaining non-negativity and unit-sum in forecasting compositional data over time. Applying the proposed model to a numerical simulation with a 4D compositional data embedded with zero components and forecasting the three production sectors in the Chinese economy both demonstrate the usefulness and validity of the new approach.