Autoregressive Neural Network EURO STOXX 50 Forecasting Model Based on Principal Component Stock Selection

Authors

  • Ahmad Abu Alrub Palestine Polytechnic University
  • Tahir Abu Awwad National College of Ireland
  • Emad Al-Saadi Istanbul Sabahattin Zaim University

DOI:

https://doi.org/10.47941/ijf.667

Keywords:

ARIMA, Neural Networks, Time series

Abstract

Purpose: The given study looks into forecast accuracy of a traditional ARIMA model while comparing it to Autoregressive Neural Network (AR-NN) model for 984 trading days on EURO STOXX 50 Index.

Methodology: A hybrid model is constructed by combining ARIMA model and feed-forward neural network model aiming to attain linear and non-linear price fluctuations. The study also incorporates the investigation of component stock prices of the index, that can be selected to improve the predictability of the hybrid model. 

Findings:The reached ARIMA (1,1,3) model showed higher scores than AR-NN model however integrating selected exogenous stock prices from the index components gave much notable accuracy results. The selected exogenous stocks were extracted after conducting PCA and model scores were compared via MAPE and RMSE.

Unique contribution to theory, practice and policy: The major contribution of this work is to provide the researcher and fnancial analyst a systematic approach for development of intelligent methodology to forecast stock market. This paper also presents the  outlines of proposed work with the aim to enhance the performance of existing techniques. Therefore, Empirical analysis is employed along with a hybrid model based on a feed-forward Neural Network. Lesser error is attained on the test set of Index stock price by comparing the performance of ARIMA and AR-NN while forecasting. Hence, The components of extracted Index stock price like exogenous features are added to make an influence from the AR-NN model. 

Author Biographies

Ahmad Abu Alrub , Palestine Polytechnic University

Assist. Prof. Dr. in Department of Accounting and Finance

Tahir Abu Awwad, National College of Ireland

Post Graduate Student: School of Computing

Emad Al-Saadi, Istanbul Sabahattin Zaim University

PhD Student: School of Law and Economics

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Published

2021-09-01

How to Cite

Alrub , A. A. ., Awwad, T. A. ., & Al-Saadi, E. . (2021). Autoregressive Neural Network EURO STOXX 50 Forecasting Model Based on Principal Component Stock Selection. International Journal of Finance, 6(2), 71–81. https://doi.org/10.47941/ijf.667

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Articles