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Application of Neural Networks to Short Time Series Composite Indexes: Evidence from the Nonlinear Autoregressive with Exogenous Inputs (NARX) Model

Author

Listed:
  • Roman Matkovskyy

    (Rennes School of Business)

  • Taoufik Bouraoui

    (Rennes School of Business)

Abstract

The aim of this paper is to extend the index of financial safety (IFS) approach with improving its predictive performance and to show the applicability of artificial neural networks to economic and financial short time series. To this end, prediction is performed by means of the nonlinear autoregressive with exogenous inputs (NARX) model that represents the neural networks and can emulate any nonlinear dynamic state space model. Thus, a NARX model, trained by means of Levenberg–Marquardt algorithm, was chosen since it gave the best performance. Results reveal that the NARX models are suitable for performing short time series composite indexes prediction.

Suggested Citation

  • Roman Matkovskyy & Taoufik Bouraoui, 2019. "Application of Neural Networks to Short Time Series Composite Indexes: Evidence from the Nonlinear Autoregressive with Exogenous Inputs (NARX) Model," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 17(2), pages 433-446, June.
    • Handle: RePEc:spr:jqecon:v:17:y:2019:i:2:d:10.1007_s40953-018-0133-8
    DOI: 10.1007/s40953-018-0133-8
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    Cited by:

    1. Yuting Bai & Xuebo Jin & Xiaoyi Wang & Tingli Su & Jianlei Kong & Yutian Lu, 2019. "Compound Autoregressive Network for Prediction of Multivariate Time Series," Complexity, Hindawi, vol. 2019, pages 1-11, September.

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    More about this item

    Keywords

    Index of financial safety (IFS); Forecasting; Nonlinear autoregressive with exogenous input (NARX) model; Neural networks;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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