Forecasting Emerging Market Indexes with Neural Networks

Forecasting Emerging Market Indexes with Neural Networks

Steven Walczah (University of Colorado at Denver, USA)
Copyright: © 2004 |Pages: 22
DOI: 10.4018/978-1-59140-176-6.ch004
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Abstract

Forecasting financial time series with neural networks is problematic. Multiple decisions, each of which affects the performance of the neural network forecasting model, must be made, including which data to use and the size and architecture of the neural network system. While most previous research with neural networks has focused on homogenous models, that is, only using data from the single time series to be forecast, the ever more global nature of the world’s financial markets necessitates the inclusion of more global knowledge into neural network design. This chapter demonstrates how specific markets are at least partially dependent on other global markets and that inclusion of heterogeneous market information will improve neural network forecasting performance over similar homogeneous models by as much as 12 percent (i.e., moving from a near 51% prediction accuracy for the direction of the market index change to a 63% accuracy of predicting the direction of the market index change).

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