Artificial neural networks to predict share prices on the Johannesburg stock exchange

Pyon, Freddie

Artificial neural networks to predict share prices on the Johannesburg stock exchange

Master Thesis

2021

Abstract

The use of historical data to build models for stock market prediction has been extensively researched. Artificial Neural Networks (ANNs) bring new opportunities for predicting stock markets, and is now one of the leading techniques used for time series and specifically stock market prediction. This study explored the application of ANNs to predict share prices in the banking sector of the South African Johannesburg Stock Exchange (JSE). This study used three companies, i.e. Standard Bank, Nedbank and First National Bank, listed on the JSE as case studies for the use of ANNs for predicting the closing share price for the next day, week and month. Historical share price data from the JSE was integrated with datasets of external factors that influence market. The external factors considered in this study include index data from NASDAQ, the JSE top 40 and all share indexes, the exchange rate and the business cycle indicator (BCI) values from the South African Reserve Bank. Comparative analysis were conducted between traditional regression models and ANN models using the lagged share price as input variable. The effect on prediction performance of using external factors as additional input variables was also explored. The ANN models using only the share price was found in general to perform better than both traditional models and ANNs that used the external factors as additional input variables. The average next month prediction model produced a noticeably smaller prediction error compared to the next week, and next day prediction models for all three banks. The results showed that the introduction of external factors as additional input variables did not lead to an improved prediction performance, over models that used only the share price. This study also highlights the importance of using an appropriate validation method and evaluating model stability for evaluating and developing ANN models for share price prediction in time series data. The results contribute to existing research that indicate that an ANN is more effective than a regression method for predicting banking share prices, and that these predictive models have potential for supporting investment decision making.

Keywords

computer science

Reference:

Collections

Masters

Full item page