Online Hybrid Neural Network for Stock Price Prediction: A Case Study of High-Frequency Stock Trading in the Chinese Market

Chengyu Li, Luyi Shen and Guoqi Qian ()
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Chengyu Li: School of Mathematics and Statistics, The University of Melbourne, Parkville, VIC 3010, Australia
Luyi Shen: School of Mathematics and Statistics, The University of Melbourne, Parkville, VIC 3010, Australia
Guoqi Qian: School of Mathematics and Statistics, The University of Melbourne, Parkville, VIC 3010, Australia

Econometrics, 2023, vol. 11, issue 2, 1-19

Abstract: Time-series data, which exhibit a low signal-to-noise ratio, non-stationarity, and non-linearity, are commonly seen in high-frequency stock trading, where the objective is to increase the likelihood of profit by taking advantage of tiny discrepancies in prices and trading on them quickly and in huge quantities. For this purpose, it is essential to apply a trading method that is capable of fast and accurate prediction from such time-series data. In this paper, we developed an online time series forecasting method for high-frequency trading (HFT) by integrating three neural network deep learning models, i.e., long short-term memory (LSTM), gated recurrent unit (GRU), and transformer; and we abbreviate the new method to online LGT or O-LGT. The key innovation underlying our method is its efficient storage management, which enables super-fast computing. Specifically, when computing the forecast for the immediate future, we only use the output calculated from the previous trading data (rather than the previous trading data themselves) together with the current trading data. Thus, the computing only involves updating the current data into the process. We evaluated the performance of O-LGT by analyzing high-frequency limit order book (LOB) data from the Chinese market. It shows that, in most cases, our model achieves a similar speed with a much higher accuracy than the conventional fast supervised learning models for HFT. However, with a slight sacrifice in accuracy, O-LGT is approximately 12 to 64 times faster than the existing high-accuracy neural network models for LOB data from the Chinese market.

Keywords: high-frequency; limit order book; online fast prediction; hybrid neural network (search for similar items in EconPapers)
JEL-codes: B23 C C00 C01 C1 C2 C3 C4 C5 C8 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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