title: Forecasting East Asian Indices Futures via a Novel Hybrid of Wavelet-PCA Denoising and Artificial Neural Network Models.
abstract: The motivation behind this research is to innovatively combine new methods like wavelet, principal component analysis (PCA), and artificial neural network (ANN) approaches to analyze trade in today's increasingly difficult and volatile financial futures markets. The main focus of this study is to facilitate forecasting by using an enhanced denoising process on market data, taken as a multivariate signal, in order to deduct the same noise from the open-high-low-close signal of a market. This research offers evidence on the predictive ability and the profitability of abnormal returns of a new hybrid forecasting model using Wavelet-PCA denoising and ANN (named WPCA-NN) on futures contracts of Hong Kong's Hang Seng futures, Japan's NIKKEI 225 futures, Singapore's MSCI futures, South Korea's KOSPI 200 futures, and Taiwan's TAIEX futures from 2005 to 2014. Using a host of technical analysis indicators consisting of RSI, MACD, MACD Signal, Stochastic Fast %K, Stochastic Slow %K, Stochastic %D, and Ultimate Oscillator, empirical results show that the annual mean returns of WPCA-NN are more than the threshold buy-and-hold for the validation, test, and evaluation periods; this is inconsistent with the traditional random walk hypothesis, which insists that mechanical rules cannot outperform the threshold buy-and-hold. The findings, however, are consistent with literature that advocates technical analysis.
authors.affiliation: Faculty of Business and Accountancy, University of Malaya, Kuala Lumpur, 50603, Malaysia.
authors.forename: Jacinta
authors.initials: J
authors.lastname: Chan Phooi M'ng
authors.affiliation: Faculty of Business and Accountancy, University of Malaya, Kuala Lumpur, 50603, Malaysia.
authors.forename: Mohammadali
authors.initials: M
authors.lastname: Mehralizadeh
mesh_terms: D001208:Asia; D005544:Forecasting; D016571:Neural Networks, Computer; D025341:Principal Component Analysis