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Financial forecasting through unsupervised clustering and neural networks

Pavlidis, Nicos and Plagianakos, Vassilis P. and Tasoulis, Dimitrios K and Vrahatis, Michael N. (2006) Financial forecasting through unsupervised clustering and neural networks. Operational Research: An International Journal, 6 (2). pp. 103-127.

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Abstract

In this paper, we review our work on a time series forecasting methodology based on the combination of unsupervised clustering and artificial neural networks. To address noise and non-stationarity, a common approach is to combine a method for the partitioning of the input space into a number of subspaces with a local approximation scheme for each subspace. Unsupervised clustering algorithms have the desirable property of deciding on the number of partitions required to accurately segment the input space during the clustering process, thus relieving the user from making this ad hoc choice. Artificial neural networks, on the other hand, are powerful computational models that have proved their capabilities on numerous hard real-world problems. The time series that we consider are all daily spot foreign exchange rates of major currencies. The experimental results reported suggest that predictability varies across different regions of the input space, irrespective of clustering algorithm. In all cases, there are regions that are associated with a particularly high forecasting performance. Evaluating the performance of the proposed methodology with respect to its profit generating capability indicates that it compares favorably with that of two other established approaches. Moving from the task of one-step-ahead to multiple-step-ahead prediction, performance deteriorates rapidly.

Item Type: Article
Journal or Publication Title: Operational Research: An International Journal
Uncontrolled Keywords: Time Series Modeling and Prediction ; Unsupervised Clustering ; Neural Networks
Subjects:
Departments: Lancaster University Management School > Management Science
ID Code: 50909
Deposited By: ep_importer_pure
Deposited On: 09 Nov 2011 08:52
Refereed?: Yes
Published?: Published
Last Modified: 26 Jul 2012 19:45
Identification Number:
URI: http://eprints.lancs.ac.uk/id/eprint/50909

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