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Forecasting financial time series with Boltzmann entropy through neural networks

Author

Listed:
  • Luca Grilli

    (University of Foggia)

  • Domenico Santoro

    (University of Bari Aldo Moro)

Abstract

Neural networks have recently been established as state-of-the-art in forecasting financial time series. However, many studies show how one architecture, the Long-Short Term Memory, is the most widespread in financial sectors due to its high performance over time series. Considering some stocks traded in financial markets and a crypto ticker, this paper tries to study the effectiveness of the Boltzmann entropy as a financial indicator to improve forecasting, comparing it with financial analysts’ most commonly used indicators. The results show how Boltzmann’s entropy, born from an Agent-Based Model, is an efficient indicator that can also be applied to stocks and cryptocurrencies alone and in combination with some classic indicators. This critical fact allows obtaining good results in prediction ability using Network architecture that is not excessively complex.

Suggested Citation

  • Luca Grilli & Domenico Santoro, 2022. "Forecasting financial time series with Boltzmann entropy through neural networks," Computational Management Science, Springer, vol. 19(4), pages 665-681, October.
    • Handle: RePEc:spr:comgts:v:19:y:2022:i:4:d:10.1007_s10287-022-00430-2
    DOI: 10.1007/s10287-022-00430-2
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    References listed on IDEAS

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    More about this item

    Keywords

    Neural networks; Price forecasting; LSTM; Boltzmann entropy; Financial markets; Cryptocurrency;
    All these keywords.

    JEL classification:

    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C88 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Other Computer Software
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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