THESIS
Forecasting Stock Price Index Using Artificial Neural
Networks in the Indonesian Stock Exchange
SOUKKHY TIPHIMMALA
Sdut.Id: 125001870/PS/MM
PROGRAM STUDY MASTER MANAGEMENT
PROGRAM GRADUATE
UNIVERSITY OF ATMA JAYA YOGYAKARTA
2014
ii
INTISARI
Indeks harga saham adalah faktor yang signifikan mempengaruhi awal pada
pengambilan keputusan keuangan investor. Itu sebabnya memprediksi gerakan
yang tepat dari indeks harga saham jauh dianggap. Penelitian ini bertujuan untuk
mengevaluasi efektivitas penggunaan indikator teknis, seperti A / D Oscillator,
Moving Average, RSI, CCI, MACD, dll dalam memprediksi pergerakan Bursa
Efek Indeks Harga Indonesia (BEI). Sebuah jaringan syaraf tiruan digunakan
untuk peramalan indeks harga saham. Data yang ada dicapai dari Yahoo.Finance.
Untuk menangkap hubungan antara indikator teknis dan tingkat indeks di pasar
untuk periode diselidiki, jaringan saraf propagasi kembali digunakan. Kinerja
statistik dan keuangan dari teknik ini dievaluasi dan hasil empiris menunjukkan
bahwa jaringan syaraf tiruan adalah alat yang cukup baik untuk memprediksi
pasar keuangan.
Kata kunci: Peramalan, prediksi, indeks harga saham, indikator teknis, jaringan
syaraf tiruan
pengambilan keputusan keuauangngan investor. IItutu sebabnya memprediksi gerakan
yang tepat dari indeeksks harga saham jauh dianggap. Penenelil tian ini bertujuan untuk
mengevaluaasisi efektivitas pengggununaaaan n inindidikakatoor r teknis, sepertii A A / D Oscillator,
Movingng Average, RSRSI,I, CCCCI, MACD, dll dalal m memempmprediksi pergererakan Bursa
Effeek Indekekss HaHarrga Inndodonesiak (BEI). Sebuah jariningagan syyararafaf ttiri uan diigug nakan
untuk k peperarammalann indeks harga saham. Data yang ada dicapaiai darii YaYahohoo.o Finanance.
UnUntut kk menanangkap hubungan antara indikator teknis dan tingkaatt indeeksks di pasaar
ununtutuk peperiode diselidiki, jaringan saraf propagasi kembali digunanakann.. KiKinnerja
statistikk dan keuangan dari teknik ini dievaluasi dan hasil empiris mmenunjukkakann
bahwaa jaringan syaraf tiruan adalah alat yang cukup baik untuk mmempreeddikssi
pasarr kkeuangganan.
KaKatata kkunci: Peramalan, prediksi, indeks harga saham, indikator teknknisis, jajarringngan
sysyararafa tiruan
iii
ABSTRACT
Stock price index is the initial significant factor influencing on investors' financial
decision making. That's why predicting the exact movements of stock price index
is considerably regarded. This study aims at evaluating the effectiveness of using
technical indicators, such as A/D Oscillator, Moving Average, RSI, CCI, MACD,
etc. in predicting movements of Indonesian Stock Exchange Price Index (IDX).
An artificial neural network is employed for stock price index forecasting. The
existing data are achieved from Yahoo.Finance. To capture the relationship
between the technical indicators and the levels of the index in the market for the
period under investigation, a back propagation neural network is used. The
statistical and financial performance of this technique is evaluated and empirical
results revealed that artificial neural networks are fairly good tools for financial
market predicting.
Keywords: Forecasting, prediction, stock price index, technical indicators,
artificial neural networks (ANN)
Stock price index is the initialal ssigignificant ffacctotor r influencing on investors' financial
decision making. TThahat's why predicting the exact movemements of stock price index
is considerablbly regarded. This sstut dydy aimims s atat evavaluating the effefectc iveness of using
technicacal indicators, susuchch aas A/D Oscillator, MoM vivingng AAvverage, RSI, CCCI, MACD,
ettcc. in prededicictitingng movemements of Indonesian Stockck EExchangnge PrPricice Indexx (IDX).
An artrtifificiciaial neeuural network is employed for stock price iindndex fororececasastit ng. ThT e
exxisistiting datata are achieved from Yahoo.Finance. To capture the rrelelata ionshiipp
bebetwtween n the technical indicators and the levels of the index in the mmarkketet fforor the
period under investigation, a back propagation neural network iss usedd. TThehe
statistiical and financial performance of this technique is evaluated annd emppiiricaal
resultltss revealed that arartitifificicialal nneural networksks aarere ffaiairlrly y good tools ffoor financicialal
mam rket predicting.
KeKeywywords: FForecaaststiningg, predidictctioion,n, sstotockck price iindndexe , tte hch inical inindidicacators,
artifificicialal neural l nenettworks (ANN)
iv
ACKNOWLEDGEMENTS
I would like to express my sincere thanks and appreciation to my supervisor,
Professor Dr. J. Sukmawati Sukamulja, for her valuable advice, guidance and very
kind support from the beginning of my study at Faculty of Master of Management
until my graduation.
My gratitude to Drs. Felix Wisnu Isdaryadi, MBA for his sincere comments for
the final edition of this thesis.
I would like to express myy ssininccere thanknkss ana d appreciation to my supervisor,
Professor Dr. J. Sukkmmawati Sukamulja, for her valuablele aadvice, guidance and very
kind supportt ffrom the beginning g ofof mmy y ststududy y att Faculty of Maststere of Management tt
until mymy graduation.
MMy gratititutudede tto Drs.s. FFelix Wisnu Isdaryadi, MBA foforr his sincncereree commenents for
the fifinanal l ede itioonn of this thesis.
v
Table of Contents
DECLARATION ......................................................................................................... i
INTISARI ...................................................................................................................ii
ABSTRACT ..............................................................................................................iii
ACKNOWLEDGEMENTS ....................................................................................... iv
List of Tables ............................................................................................................vii
List of Figures ..........................................................................................................viii
ABBREVATIONS .................................................................................................... ix
CHAPTER 1 INTRODUCTION ................................................................................ 1
1.1. Problem Identification ......................................................................................... 5
1.2. Objective of the Research ................................................................................... 6
1.4. Scope of the Research ......................................................................................... 8
1.5. Organization of the Thesis .................................................................................. 9
CHAPTER 2 LITERATURE REVIEW ................................................................... 10
2.1 Artificial Neural Network ................................................................................. 10
2.2 Review of previous researches .......................................................................... 11
2.3 Learning Paradigms in ANNs ........................................................................... 14
CHAPTER 3 RESEARCH METHODOLOGY ...................................................... 20
3.1 Statistical Performance Evaluation of the Model.............................................. 22
DECLARATION ..........................................................................................................
INTISARI .............................................................................. .....................................
ABSTRAACCT ....................................................... ..... ..... .............................................................
ACCKKNOWLELEDGD EMMENTSS................................... .............................................................
Listt of f TaTablbles ...................................................................................................................
LiListst oof f Figugures ...............................................................................................................v
ABABBRREEVATIONS .....................................................................................................
CHAAPTER 1 INTRODUCTION ................................................................................
1.1 1. PrP oblem Identification ........................................................................................
1.2. Objective off the Researchh ..........................................................................................
1.1 4.4. Scope of the Research ............................................................................................
1.1.5.5 Orga inizatition oof f ththee Thesis ..............................................................................................
CHAPAPTETERR 22 LILITERATURE REVEVIEW ...................................................................
2.1 Artificial Neural Network ...................................................................................
2.2 Review of previous researchehes ...........................................................................
2.3 Learning Paradigms in ANNs ............................................................................
vi
3.2 Financial Performance Evaluation of the Model .............................................. 24
3.3 Research Data................................................................................................... 25
3.4 Data preparation ............................................................................................... 26
3.5 Variable Calculation......................................................................................... 27
CHAPTER 4 DESCRIPTIVE STATISTICS .......................................................... 31
CHAPTER 5 RESEARCH RESULTS AND ANALYSIS ..................................... 36
5.1 Comparison of Financial Performance.............................................................. 36
5.2 Comparison of Statistical Performance ............................................................. 45
CHAPTER 6 CONCLUSION .................................................................................. 49
REFERENCES ......................................................................................................... 54
Apendix A: Matlab code........................................................................................... 58
A. Preprocess code ................................................................................................... 58
B. Training code ....................................................................................................... 60
C. Testing code......................................................................................................... 73
3.4 Data preparation ..................................................................................................
3.5 Variablee CCalculation..........................................................................................
CHAPPTTER 4 DESSCRCRIPIPTTIVE SSTATATITISTSTICCSS ...... ................................................................
CHCHAPTEER R 55 RRESEARCRCHH RESULTS AND ANNALALYSIS ...........................................
5.1 CComomparisoson of Financial Performance.....................................................................
5.5.22 Commparison of Statistical Performance ....................................................... ............
CHC APPTER 6 CONCLUSION ..................................................................................... .
REFEERENCES ............................................................................................................
ApApenendix A: Matlab code................................................................................................
A. Preprocess code ..........................................................................................................
B.B TrTraiaininingng code ................................................................................................................
C.C. TTesesting codode.e............................ ........................................ ................. ......................................
vii
List of Tables
Table 1. The number of sample in the entire data set ............................................... 26
Table 2. Selected technical indicators and their formulas ........................................ 28
Table 3. Defined Variables ....................................................................................... 30
Table 4. ANN parameter levels tested in parameter setting ..................................... 32
Table 5. Summary statistics for the selected indicators ............................................ 33
Table 6. Three parameters for training and testing of ANN model .......................... 37
Table 7: Testing with parameter combination (10, 0.2 , 0.5, 1e6) ............................ 38
Table 8. Testing with parameter combination (30, 0.3, 0.5, 1e6) ............................. 39
Table: 9. Testing with parameter combination (50, 0.2, 0.5, 1e-6) .......................... 39
Table 10. Summary of the best forecasting, parameters (10, 0.2 , 0.5, 1e6) ............ 41
Table 11. Financial performance of ANN model ..................................................... 42
Table 12. The empirical result of other research ...................................................... 44
Table: 13 the best statistic & financial performance ............................................... 46
Table 14. Statistical performance of ANN model .................................................... 48
Table 1. The number off ssaample in the entire datata sset ...............................................
Table 2. Selecctetedd technical indid cators and their formulas ..........................................
Table 3.3. Defined VVarariaiablblese ....................................................................................................
TaTable 4. AANNNN pparametterer llevels tested in parameteterr setting ............................................
Tablble e 5.5 SSummmary statistics for the selected indicators ...................................................
TaTablb e 6. TThree parameters for training and testing of ANN modeell ..................................
TaT ble 77: Testing with parameter combination (10, 0.2 , 0.5, 1e6) ............................... .
Tablee 8. Testing with parameter combination (30, 0.3, 0.5, 1e6) ................................
TaTablb ee: 9. Testing with pparameter combination ((50,, 0.2, 0.5, 1e-6) ......................... ......
Table 10. Summary of the best forerecac ststining, parameters (10, 0.2 , 0.5, 1e6) ................
TaTablble e 1111. Financial pep rformance of ANN model ..............................................................
TaTablblee 12. The emempipi iricaall reresusultlt of ototheher r rresearrchch ......... .....................................................
Table: 13 the best statistic & finanancial peerfr ormance ...............................................
Table 14. Statistical performancce of ANN mmodel ....................................................
viii
List of Figures
Fig. 1 An artificial neural network is an interconnected group of nodes................. 11
Fig. 2 A Neural network with three-layer feed forward .......................................... 16
Fig. 3 Tan-Sigmoid Transfer Function and Linear Transfer Function ................. 31
Fig. 4 Data preparation (actual technical parameters & normalized technical
parameters) ...................................................................................................... 34
Fig. 5 Training process of ANN model ................................................................... 34
Fig. 6 Testing of ANN model .................................................................................. 35
Fig.7 Predict next trading day, by entering new data to the network ...................... 35
Fig. 8 Training & Forecasting performance (%) of ANN model for a whole data
set (n = 50, η = 0.2, μ = 0.5, ep = 1e6). .......................................................... 41
Fig. 9 Forecasting performance (%) of ANN model for various η values .............. 43
Fig. 1 An artificial neurralal network is an interconnnnected group of nodes.................
Fig. 2 A Neurarall network withh three-layer feed forward ............................................
Fig. 3 TTan-Sigmoidid TTrarannsfer FuFuncnctitionon andnd LiLinenearar TTrar nsfer Funcctition .................
FiFig. 4 Datataa prprepeparation n (a(actual technical parameetetersr & norrmamalilizezed techninical
papararammeteersrs) ...........................................................................................................
FiFigg. 55 Traraining process of ANN model .......................................................................
FiFig. 6 Testing of ANN model .......................................................................................
Fig.77 Predict next trading day, by entering new data to the network ........................
FiFig.g 88 Training & Forecasting performance (%) of ANN model for a wwhoolele datta a
set (n = 5050, η = 00.22, μ == 00.5.5,, ep = 11e6e6)). ..............................................................
FiFig.g. 9 Forecasting performance (%) of ANN model for various η valueses .................
ix
ABBREVATIONS
GDP : gross domestic product
IA : artificial intelligent
ANN : artificial neural network
IDX : Indonesian Stock Index
JKSE : Jakarta Stock Exchange (Pervious name of IDX)
MAE : mean absolute error
RMSE : root mean square error
MAPE : mean absolute percentage error
R2 : goodness of fit
APE : absolute percentage error
PO : predicted output
AO : actual output
CCI : commodity channel index
MACD: moving average convergence divergence
ROC : price-rate-of change
RSI : relative strength index
GDP : gross domestic prodducuctt
IA : artificiaall iintelligent
ANN :: artificial neuru alal nneetworkk
IDDX : Inndodonenesisian Stotockck Index
JKSEE : JJakarartta Stock Exchange (Pervious name of IDX)
MAMAE E : mmean absolute error
RMSEE : root mean square error
MAMAPEE : mean absolute percentage error
R2 : goodness of fit
APAPEE : ababsosolulutete pperercecentntagagee ererror r
POO :: ppreredidictcteded ooututpput
AO : actual output
CCI : commodity channel indexx
MACD: moving average convergencee ddivergence
x
PR : predicted rate (forecasting rate)
n : neuron
η : learning rate
μ : momentum constant
ep : epoch
IT : information technology
LSM : The Libyan Exchange Stock Market
TEPIX : The Tehran Exchange Price Index
η : learning rate
μ : momentum coconstant
ep : epochh
IT : iinformationn ttecechnhnology y
LSMM : The LiLibybyan Exchangngee StStockk Ma krk tet
TTEPIX :: TThe e TeT hranan Exchange Price Index