Estimating stock closing indices using a GA-weighted condensed polynomial neural network

Abstract

Abstract Accurate forecasting of changes in stock market indices can provide financial managers and individual investors with strategically valuable information. However, predicting the closing prices of stock indices remains a challenging task because stock price movements are characterized by high volatility and nonlinearity. This paper proposes a novel condensed polynomial neural network (CPNN) for the task of forecasting stock closing price indices. We developed a model that uses partial descriptions (PDs) and is limited to only two layers for the PNN architecture. The outputs of these PDs along with the original features are fed to a single output neuron, and the synaptic weight values and biases of the CPNN are optimized by a genetic algorithm. The proposed model was evaluated by predicting the next day’s closing price of five fast-growing stock indices: the BSE, DJIA, NASDAQ, FTSE, and TAIEX. In comparative testing, the proposed model proved its ability to provide closing price predictions with superior accuracy. Further, the Deibold-Mariano test justified the statistical significance of the model, establishing that this approach can be adopted as a competent financial forecasting tool.

Keywords

• Stock market forecasting
• Polynomial neural network
• Partial description
• Genetic algorithm
• Multilayer perceptron