Financial prediction using time series

This thesis discusses the implementation of a feed forward NN using time series model to predict the sudden rise or sudden crash of a company's stock prices. The theory behind this prediction system is Pattern recognition. Pattern recognition techniques for time-series prediction are based on structural matching of the current state of the time-series with previously occurring states in historical data for making predictions. This study reports the result of attempts to predict the Motorola stock price index using artificial neural networks (ANN). Daily data from January 1999 to December 2001 were taken from the NYSE. These data are classified based on criteria of an n% fall or rise of price corresponding to the previous day close price. A novel method using Hurst exponent is used in selecting the data set. These data are fed into a Back Propagated Neural Network. The number of hidden layers and number of neurons are systematically selected to implement a better predicting machine. The implemented model is tested using both interpolated and extrapolated data. Fundamental limitations and inherent difficulties when using neural networks for processing of high noise, small sample size signals are also discussed. Results of the prediction are presented and an elaborate discussion is made comparing the results.