A novel model by evolving partially connected neural network for stock price trend forecasting

  • Authors:

  • Pei-Chann Chang;Di-Di Wang;Chang-Le Zhou

  • Affiliations:

  • Department of Information Management, Yuan Ze University, Taoyuan 32026, Taiwan and Cognitive Science Department, Fujian Key Laboratory of Mind, Art and Computation, Xiamen University, Xiamen 3610 ...;Cognitive Science Department, Fujian Key Laboratory of Mind, Art and Computation, Xiamen University, Xiamen 361005, China and Department of Information Management, Yuan Ze University, Taoyuan 3202 ...;Cognitive Science Department, Fujian Key Laboratory of Mind, Art and Computation, Xiamen University, Xiamen 361005, China

  • Venue:
  • Expert Systems with Applications: An International Journal
  • Year:
  • 2012

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Abstract

This paper proposes a novel model by evolving partially connected neural networks (EPCNNs) to predict the stock price trend using technical indicators as inputs. The proposed architecture has provided some new features different from the features of artificial neural networks: (1) connection between neurons is random; (2) there can be more than one hidden layer; (3) evolutionary algorithm is employed to improve the learning algorithm and training weights. In order to improve the expressive ability of neural networks, EPCNN utilizes random connection between neurons and more hidden layers to learn the knowledge stored within the historic time series data. The genetically evolved weights mitigate the well-known limitations of gradient descent algorithm. In addition, the activation function is defined using sin(x) function instead of sigmoid function. Three experiments were conducted which are explained as follows. In the first experiment, we compared the predicted value of the trained EPCNN model with the actual value to evaluate the prediction accuracy of the model. Second experiment studied the over fitting problem which occurred in neural network training by taking different number of neurons and layers. The third experiment compared the performance of the proposed EPCNN model with other models like BPN, TSK fuzzy system, multiple regression analysis and showed that EPCNN can provide a very accurate prediction of the stock price index for most of the data. Therefore, it is a very promising tool in forecasting of the financial time series data.