Multi-step-ahead Stock Price Prediction Using Recurrent Fuzzy Neural Network and Variational Mode Decomposition

TL;DR

This paper introduces two novel multi-step-ahead stock price prediction methods using fuzzy neural networks combined with decomposition techniques, demonstrating significant accuracy improvements on major indices.

Contribution

The study proposes DCT-MFRFNN and VMD-MFRFNN, integrating decomposition methods with fuzzy neural networks for enhanced multi-step stock price forecasting.

Findings

VMD-MFRFNN reduces RMSE by approximately 35.93% on HSI.

VMD-MFRFNN outperforms other models on SSE and SPX indices.

DCT-MFRFNN consistently outperforms MFRFNN in all experiments.

Abstract

Financial time series prediction, a growing research topic, has attracted considerable interest from scholars, and several approaches have been developed. Among them, decomposition-based methods have achieved promising results. Most decomposition-based methods approximate a single function, which is insufficient for obtaining accurate results. Moreover, most existing researches have concentrated on one-step-ahead forecasting that prevents stock market investors from arriving at the best decisions for the future. This study proposes two novel methods for multi-step-ahead stock price prediction based on the issues outlined. DCT-MFRFNN, a method based on discrete cosine transform (DCT) and multi-functional recurrent fuzzy neural network (MFRFNN), uses DCT to reduce fluctuations in the time series and simplify its structure and MFRFNN to predict the stock price. VMD-MFRFNN, an approach based on variational mode decomposition (VMD) and MFRFNN, brings together their advantages. VMD-MFRFNN consists of two phases. The input signal is decomposed to several IMFs using VMD in the decomposition phase. In the prediction and reconstruction phase, each of the IMFs is given to a separate MFRFNN for prediction, and predicted signals are summed to reconstruct the output. Three financial time series, including Hang Seng Index (HSI), Shanghai Stock Exchange (SSE), and Standard & Poor's 500 Index (SPX), are used for the evaluation of the proposed methods. Experimental results indicate that VMD-MFRFNN surpasses other state-of-the-art methods. VMD-MFRFNN, on average, shows 35.93%, 24.88%, and 34.59% decreases in RMSE from the second-best model for HSI, SSE, and SPX, respectively. Also, DCT-MFRFNN outperforms MFRFNN in all experiments.