De-noising classification method for financial time series based on ICEEMDAN and wavelet threshold, and its application

Abstract

Abstract This paper proposes a classification method for financial time series that addresses the significant issue of noise. The proposed method combines improved complete ensemble empirical mode decomposition with adaptive noise (ICEEMDAN) and wavelet threshold de-noising. The method begins by employing ICEEMDAN to decompose the time series into modal components and residuals. Using the noise component verification approach introduced in this paper, these components are categorized into noisy and de-noised elements. The noisy components are then de-noised using the Wavelet Threshold technique, which separates the non-noise and noise elements. The final de-noised output is produced by merging the non-noise elements with the de-noised components, and the 1-NN (nearest neighbor) algorithm is applied for time series classification. Highlighting its practical value in finance, this paper introduces a two-step stock classification prediction method that combines time series classification with a BP (Backpropagation) neural network. The method first classifies stocks into portfolios with high internal similarity using time series classification. It then employs a BP neural network to predict the classification of stock price movements within these portfolios. Backtesting confirms that this approach can enhance the accuracy of predicting stock price fluctuations.

Keywords

• Time series classification
• Decomposition-ensemble
• Empirical mode decomposition
• Quantitative portfolio investment