Neural Network-Based Predictive Models for Stock Market Index Forecasting

Karime Chahuán-Jiménez ()
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Karime Chahuán-Jiménez: Centro de Investigación en Negocios y Gestión Empresarial, Escuela de Auditoría, Universidad de Valparaíso, Valparaíso 2361891, Chile

JRFM, 2024, vol. 17, issue 6, 1-18

Abstract: The stock market, characterised by its complexity and dynamic nature, presents significant challenges for predictive analytics. This research compares the effectiveness of neural network models in predicting the S&P500 index, recognising that a critical component of financial decision making is market volatility. The research examines neural network models such as Long Short-Term Memory (LSTM), Convolutional Neural Network (CNN), Artificial Neural Network (ANN), Recurrent Neural Network (RNN), and Gated Recurrent Unit (GRU), taking into account their individual characteristics of pattern recognition, sequential data processing, and handling of nonlinear relationships. These models are analysed using key performance indicators such as the Root Mean Square Error (RMSE), Mean Absolute Percentage Error (MAPE), and Directional Accuracy, a metric considered essential for prediction in both the training and testing phases of this research. The results show that although each model has its own advantages, the GRU and CNN models perform particularly well according to these metrics. GRU has the lowest error metrics, indicating its robustness in accurate prediction, while CNN has the highest directional accuracy in testing, indicating its efficiency in data processing. This study highlights the potential of combining metrics for neural network models for consideration when making decisions due to the changing dynamics of the stock market.

Keywords: time series; stock market index; machine learning; forecast; prediction (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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