Neural Networks in the Capital Markets: An Application to Index Forecasting

Christian Helmenstein, Christian Häfke

Publication: Working/Discussion PaperWU Working Paper

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Abstract

In this article we construct an Index of Austrian Initial Public Offerings (IPOX) which is isomorph to the Austrian Traded Index (ATX). Conjecturing that the ATX qualifies as an explaining variable for the IPOX, we investigate the time trend properties of and the comovement between the two indices. We use the relationship to construct a TJ.eural network and a linear error-correction forecasting model for the IPOX and base a tracling scheme on either forecast. The results suggest that trading based on the forecasts significantly increases an investor's return as compared to Buy and Hold or simple Moving Average trading strategies.

Publication series

SeriesDepartment of Economics Working Paper Series
Number32

WU Working Paper Series

  • Department of Economics Working Paper Series

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