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Neural Networks to Predict Financial Time Series in a Minority Game Context

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  • Luca Grilli
  • Angelo Sfrecola

Abstract

In this paper we consider financial time series from U.S. Fixed Income Market, S&P500, Exchange Market and Oil Market. It is well known that financial time series reveal some anomalies as regards the Efficient Market Hypotesis and some scaling behavior is evident such as fat tails and clustered volatility. This suggests to consider financial time serie as "pseudo"-random time series. For this kind of time series the power of prediction of neural networks has been shown to be appreciable. We first consider the financial time serie from the Minority Game point of view and than we apply a neural network with learning algorithm in order to analyze its prediction power. We show that Fixed Income Market presents many differences from other markets in terms of predictability as a measure of market efficiency.

Suggested Citation

  • Luca Grilli & Angelo Sfrecola, 2005. "Neural Networks to Predict Financial Time Series in a Minority Game Context," Quaderni DSEMS 14-2005, Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia.
    • Handle: RePEc:ufg:qdsems:14-2005
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    References listed on IDEAS

    as
    1. Challet, Damien, 2008. "Inter-pattern speculation: Beyond minority, majority and $-games," Journal of Economic Dynamics and Control, Elsevier, vol. 32(1), pages 85-100, January.
    2. Grilli, Luca, 2004. "Long-term fixed income market structure," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 332(C), pages 441-447.
    3. Arthur, W Brian, 1994. "Inductive Reasoning and Bounded Rationality," American Economic Review, American Economic Association, vol. 84(2), pages 406-411, May.
    4. D. Challet & A. Chessa & M. Marsili & Y-C. Zhang, 2001. "From Minority Games to real markets," Quantitative Finance, Taylor & Francis Journals, vol. 1(1), pages 168-176.
    5. A. C. C. Coolen, 2004. "Generating functional analysis of Minority Games with real market histories," Papers cond-mat/0410335, arXiv.org.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Minority Game; Learning Algorithms; Neural Networks; Financial Time Series; Efficient Market Hypotesis;
    All these keywords.

    JEL classification:

    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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