Forecasting SP 500 stock index futures with a hybrid AI system》.pdfVIP

Decision Support Systems 23 1998 161–174 Forecasting SP 500 stock index futures with a hybrid AI system Ray Tsaih a, , Yenshan Hsu b , Charles C. Lai a a Department of Management Information Systems, National Chengchi Uniersity, Taipei, Taiwan b Department of Finance, National Chengchi Uniersity, Taipei, Taiwan Received 1 August 1996; revised 1 June 1997; accepted 1 January 1998 Abstract This study presents a hybrid AI artificial intelligence approach to the implementation of trading strategies in the SP 500 stock index futures market. The hybrid AI approach integrates the rule-based systems technique and the neural networks technique to accurately predict the direction of daily price changes in SP 500 stock index futures. By highlighting the advantages and overcoming the limitations of both the neural networks technique and rule-based systems technique, the hybrid approach can facilitate the development of more reliable intelligent systems to model expert thinking and to support the decision-making processes. Our methodology differs from other studies in two respects. First, the rule-based systems approach is applied to provide neural networks with training examples. Second, we employ Reasoning Neural Networks RN instead of Back Propagation Networks. Empirical results demonstrate that RN outperforms the other two ANN models Back Propagation Networks and Perceptron . Based upon this hybrid AI approach, the integrated futures trading system IFTS is established and employed to trade the SP 500 stock index futures contracts. Empirical results also confirm tha