Time series forecasting with neural network ensembles: an application for exchange rate prediction

G P Zhang () and V L Berardi
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G P Zhang: Georgia State University
V L Berardi: Kent State University

Journal of the Operational Research Society, 2001, vol. 52, issue 6, 652-664

Abstract: Abstract This paper investigates the use of neural network combining methods to improve time series forecasting performance of the traditional single keep-the-best (KTB) model. The ensemble methods are applied to the difficult problem of exchange rate forecasting. Two general approaches to combining neural networks are proposed and examined in predicting the exchange rate between the British pound and US dollar. Specifically, we propose to use systematic and serial partitioning methods to build neural network ensembles for time series forecasting. It is found that the basic ensemble approach created with non-varying network architectures trained using different initial random weights is not effective in improving the accuracy of prediction while ensemble models consisting of different neural network structures can consistently outperform predictions of the single ‘best’ network. Results also show that neural ensembles based on different partitions of the data are more effective than those developed with the full training data in out-of-sample forecasting. Moreover, reducing correlation among forecasts made by the ensemble members by utilizing data partitioning techniques is the key to success for the neural ensemble models. Although our ensemble methods show considerable advantages over the traditional KTB approach, they do not have significant improvement compared to the widely used random walk model in exchange rate forecasting.

Keywords: neural network ensemble; exchange rate; time series; forecasting (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (32)

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DOI: 10.1057/palgrave.jors.2601133

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