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Stock market index prediction using transformer neural network models and frequency decomposition

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Abstract

In an increasingly complex and volatile environment, government officials, researchers, and investors alike would like to possess models that accurately forecast markets in order to make appropriate decisions. This research investigates the efficacy of Transformer-based deep neural networks in predicting financial market returns compared to traditional models, focusing on ten different market indexes. The study employs a comprehensive methodology that involves iterative dropout tests and batch size optimization to enhance model performance. By leveraging the power of deep learning, the research aims to improve prediction accuracy and capture complex patterns in stock market data. Twelve neural network architectures are compared across ten indexes to measure their performance, finding that the proposed Transformer variants produce significantly better results compared to benchmark models in all cases. The results of ablative experiments reveal the superiority of Transformer models in capturing long-term dependencies and extracting meaningful features from time series data. The findings suggest that Transformer neural networks outperform LSTM networks and other traditional models in forecasting financial market trends. This research contributes to the growing body of literature on deep learning applications in finance and provides valuable insights for government officials, researchers, and investors seeking to make informed decisions in the stock market. The implications of this study extend beyond academia, offering practical implications for enhancing prediction accuracy and optimizing investment strategies in the dynamic and volatile financial market landscape.

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Authors and Affiliations

  1. Departamento de Industrias, Universidad Técnica Federico Santa María, Valparaíso, Chile

    Camilo Yañez & Werner Kristjanpoller

  2. Rockwell School of Business, Robert Morris University, Moon Township, PA, USA

    Marcel C. Minutolo

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  1. Camilo Yañez
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Correspondence to Werner Kristjanpoller.

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Appendices

Model results

See Table 6.

Table 6 Undecomposed models results
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CAC 40 loss curves

See Figs. 12 and 13.

Fig. 12
figure 12

IMF 1 Loss curve during training

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Fig. 13
figure 13

Residual Loss curve during training

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Yañez, C., Kristjanpoller, W. & Minutolo, M.C. Stock market index prediction using transformer neural network models and frequency decomposition. Neural Comput & Applic (2024). https://doi.org/10.1007/s00521-024-09931-4

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