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Application of Pi-Sigma Neural Networks and Ridge Polynomial Neural Networks to Financial Time Series Prediction

Application of Pi-Sigma Neural Networks and Ridge Polynomial Neural Networks to Financial Time Series Prediction
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Author(s): Rozaida Ghazali (Liverpool John Moores University, UK) and Dhiya Al-Jumeily (Liverpool John Moores University, UK)
Copyright: 2009
Pages: 23
Source title: Artificial Higher Order Neural Networks for Economics and Business
Source Author(s)/Editor(s): Ming Zhang (Christopher Newport University, USA)
DOI: 10.4018/978-1-59904-897-0.ch012

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Abstract

This chapter discusses the use of two artificial Higher Order Neural Networks (HONNs) models; the Pi- Sigma Neural Networks and the Ridge Polynomial Neural Networks, in financial time series forecasting. The networks were used to forecast the upcoming trends of three noisy financial signals; the exchange rate between the US Dollar and the Euro, the exchange rate between the Japanese Yen and the Euro, and the United States 10-year government bond. In particular, we systematically investigate a method of pre-processing the signals in order to reduce the trends in them. The performance of the networks is benchmarked against the performance of Multilayer Perceptrons. From the simulation results, the predictions clearly demonstrated that HONNs models, particularly Ridge Polynomial Neural Networks generate higher profit returns with fast convergence, therefore show considerable promise as a decision making tool. It is hoped that individual investor could benefit from the use of this forecasting tool.

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