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Evaluating Neural Network Predictors by Bootstrapping

Author

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  • Blake LeBaron

    (University of Wisconsin)

  • Andreas S. Weigend

    (University of Colorado)

Abstract

We present a new method, inspired by the bootstrap, whose goal it is to determine the quality and reliability of a neural network predictor. Our method leads to more robust forecasting along with a large amount of statistical information on forecast performance that we exploit. We exhibit the method in the context of multi-variate time series prediction on financial data from the New York Stock Exchange. It turns out that the variation due to different resamplings (i.e., splits between training, cross-validation, and test sets) is significantly larger than the variation due to different network conditions (such as architecture and initial weights). Furthermore, this method allows us to forecast a probability distribution, as opposed to the traditional case of just a single value at each time step. We demonstrate this on a strictly held-out test set that includes the 1987 stock market crash. We also compare the performance of the class of neural networks to identically bootstrapped linear models.

Suggested Citation

  • Blake LeBaron & Andreas S. Weigend, 1994. "Evaluating Neural Network Predictors by Bootstrapping," Finance 9411002, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpfi:9411002
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    References listed on IDEAS

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    1. Gallant, A Ronald & Rossi, Peter E & Tauchen, George, 1993. "Nonlinear Dynamic Structures," Econometrica, Econometric Society, vol. 61(4), pages 871-907, July.
    2. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
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    Cited by:

    1. D. Guegan & L. Mercier, 2005. "Prediction in chaotic time series: methods and comparisons with an application to financial intra-day data," The European Journal of Finance, Taylor & Francis Journals, vol. 11(2), pages 137-150.
    2. Estanislao Arana & Pedro Delicado & Luis Martí, 1999. "Validation procedures in radiological diagnostic models. Neural network and logistic regression," Economics Working Papers 414, Department of Economics and Business, Universitat Pompeu Fabra.
    3. Peter Buhlmann, 1998. "Extreme events from the return-volume process: a discretization approach for complexity reduction," Applied Financial Economics, Taylor & Francis Journals, vol. 8(3), pages 267-278.

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