Improved financial time series forecasting by combining Support Vector Machines with self-organizing feature map

Article type: Research Article

Authors: Tay, Francis Eng Hock | Cao, Li Juan

Affiliations: Department of Mechanical Engineering, National University of Singapore, 10 Kent Ridge Crescent, 119260, Singapore. E-mail: [email protected]

Abstract: A two-stage neural network architecture constructed by combining Support Vector Machines (SVMs) with self-organizing feature map (SOM) is proposed for financial time series forecasting. In the first stage, SOM is used as a clustering algorithm to partition the whole input space into several disjoint regions. A tree-structured architecture is adopted in the partition to avoid the problem of predetermining the number of partitioned regions. Then, in the second stage, multiple SVMs, also called SVM experts, that best fit each partitioned region are constructed by finding the most appropriate kernel function and the optimal learning parameters of SVMs. The Santa Fe exchange rate and five real futures contracts are used in the experiment. It is shown that the proposed method achieves both significantly higher prediction performance and faster convergence speed in comparison with a single SVM model.

Keywords: financial time series forecasting, non-stationarity, support vector machines, self-organizing feature map

DOI: 10.3233/IDA-2001-5405

Journal: Intelligent Data Analysis, vol. 5, no. 4, pp. 339-354, 2001