Financial Time Series Forecasting Using Artificial Neural Networks

Financial and capital markets (especially stock markets) are considered high return investment fields, which in the same time are dominated by uncertainty and volatility. Stock market prediction tries to reduce this uncertainty and consequently the risk. As stock markets are influenced by many economical, political and even psychological factors, it is very difficult to forecast the movement of future values. Since classical statistical methods (primarily technical and fundamental analysis) are unable to deal with the non-linearity in the dataset, thus it became necessary the utilization of more advanced forecasting procedures. Financial prediction is a research active area and neural networks have been proposed as one of the most promising methods for such predictions. Artificial Neural Networks (ANNs) mimics, simulates the learning capability of the human brain. NNs are able to find accurate solutions in a complex, noisy environment or even to deal efficiently with partial information. In the last decade the ANNs have been widely used for predicting financial markets, because they are capable to detect and reproduce linear and nonlinear relationships among a set of variables. Furthermore they have a potential of learning the underlying mechanics of stock markets, i.e. to capture the complex dynamics and non-linearity of the stock market time series. In this paper, study we will get acquainted with some financial time series analysis concepts and theories linked to stock markets, as well as with the neural networks based systems and hybrid techniques that were used to solve several forecasting problems concerning the capital, financial and stock markets. Putting the foregoing experimental results to use, we will develop, implement a multilayer feedforward neural network based financial time series forecasting system. Thus, this system will be used to predict the future index values of major US and European stock exchanges and the evolution of interest rates as well as the future stock price of some US mammoth companies (primarily from IT branch).