International Conference on Computing and Intelligence Systems

Pages: 1208 1212

Volume: 04, Special Issue: March 2015

ISSN: 2278-2397

Prediction of Stock using Artificial Neural

Networks (A Survey)
G.Sundar1, K.Satyanarayana2
Research Scholar, Bharath University, Chennai
Principal &Prof, Dept of Computer Science,Sindhi College,Chennai
Email: sundarganapathy66@gmail.com, ks62@rediffmail.com
1

Abstract-Supreme prediction of stock price

revolutionizes is vastly tricky and momentous
information for investors. The use of artificial
neural networks has found a variegated field of
applications in the present world. This has led to
the development of various models for financial
markets and investment. To outline the design of
Artificial Neural Network model with its features
and various parameters. Investors need to
understand that stock price data is the most
important information which is highly impulsive,a
non-parametric and are affected by many
suspicions an interrelated economic and political
factor across the globe. Neural Networks can be
used as a better substitute technique for
forecasting the daily stock market prices. This
study demonstrates the literature analysis of
prophecy in stock market.
Keywords: Artificial Neural Networks (ANNs),
Forecasting, Stock Price, Prediction methods
I.

INTRODUCTION

Artificial Neural Network(ANN)conceptions used

over the last few years and applied to different
problem
domains
as
finance,
medicine,manufacturing,geology and physics. Stock
market is one of the major investments for backer for
the past 20 years. The Bombay Stock Exchange (BSE)
is one of the Indias major stock exchange and the
oldest exchanges across the world. To guess the
closing price of stock market with reference to some
companies listed under BSE using artificial neural
network many methods have been made on stock
market to predict the stock prices. ANN helped
researcher in developing many model using deeprooted, technical and time series in forecasting the
competitive predictions of stock price for the
investors.The ANNs have the ability to determine the
nonlinear relationship in the input data set without a
priori assumption of familiarity of relation between
the input and theoutput. Hence ANNs match well
than any other reproduction in predictthe stock price.
Neural Network is extremely appropriate for
resembling Fuzzy Controllers and other types of
Fuzzy Expert Systems. The concept of Artificial
Neural Network (ANN) begins with the functions of
human brain. Human brain consists of approximately
10 billion neurons (nerve cells) and 6000 times as

International Journal of Computing Algorithm (IJCOA)

many connections between them. ANN as motivated

by biological nervous systems, process information
supplied, with a large number of highly
interconnected processing neurons. ANN may be
considered as a data processing technique that maps or
relates some type of input stream of information to an
output stream of data.
ANN consists of neurons (nodes) distributed
across layers. The way these neurons are distributed
and connected with each other defines the architecture
of the network. The connection between the neurons is
attributed by a weight. Each neuron is a processing
unit that takes a number of inputs and after processing
with an activation function called transfer function
yields a distinct output. The most commonly used
transfer functions include, the hardlimit, the
purelinear, the sigmoid and the tan sigmoid
function.ANNs are considered nonlinear statistical
data modeling tools where the complex relationships
between inputs and outputs are modeled or patterns
are found.
II.

ARTIFICIAL NEURON NETWORK

An artificial neuron network (ANN) is a

computational model based on the structure and
functions of biological neural networks. Information
that flows through the network affects the structure of
the ANN because a neural network changes - or
learns, in a sense - based on that input and output.

Figure 1 Formation of ANN

In Figure 1 various inputs to the network are
represented by the mathematical symbol, x(n). Each of

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these inputs is multiplied by a connection weight.
These weights are represented by w(n). In the simplest
case, these products are simply summed, fed through a
transfer function to generate a result, and then output.
This process lends itself to physical implementation
on a large scale in a small package. This electronic
implementation is still possible with other network
structures which utilize different summing functions
as well as different transfer functions.
A. Layers in ANN
ANNs have three layers that are interconnected.
The first layer consists of input neurons. Those
neurons send data on to the second layer, which in
turn sends the output neurons to the third layer.

Figure 2 Layers in ANN

Figure. 2A shows a neuron. The activation
function is usually non linear, with a sigmoid shape
(e.g., logistic or hyperbolic tangent function). A
simple network having the universal approximation
property (i.e., the capability of approximating a non
linear map as precisely as needed, by increasing the
number of parameters) is the feed forward MLP(Multi
Layer Perceptron) with a single hidden layer, shown
in Figure. 2B.
B. Methods of ANN Learning
Learning based solutions can becategorized as:
Supervised or associative learning. Where the net is
trained by quantifying input, as well as matching
output patterns.These input/output pairs may either be
provided by an external teaching component, or by the
net itself (self-supervisedapproach).
Unsupervised learning (self-organizing paradigm).
Where the net (output) unit is trained to respond to
clusters ofpattern within the input framework. In this
paradigm, the system is supposed to discover
statistically salient features ofthe input population.
Compared to the supervised learning method, there is
no a priori set of categories into which thepatterns are
to be classified, rather the system has to develop its
own representation of the input stimuli. For
supervisedand unsupervised learning methods,
basically all the learning rules reflect a variant of the
Hebbian learning rule.
Reinforcement Learning. Where the net applies a
learning paradigm that is considered an intermediate
form of theabove 2 types of learning. In this method,

International Journal of Computing Algorithm (IJCOA)

Volume: 04, Special Issue: March 2015

ISSN: 2278-2397

the learning machine executes some action on the

environment, and as aresult, receives some
feedback/response. The learning component grades
its action (as either good or bad) based on
theenvironmental response, and adjusts its parameters
accordingly. Generally speaking, the parameter
adjustment processis continued until an equilibrium
state surfaces where no further adjustments are
necessary
Back-propagation and the conjugate-gradient
method(also known as MLP Multi Layer Perceptron)
work by iteratively training the network using the
presented training data. On each iteration (or epoch),
the entire training set is presented to the network, one
case at a time. In order to update the weights a cost
function is determined in terms of the weights and its
derivative (or gradient) with respect to each weight is
estimated [10]. Weights are updated following the
direction of steepest descent of the cost function. A
common cost function and the one used in this work is
the Root Mean Squared ( RMS) error. During
experimentation with the two methods backpropagation was a little slower to learn that the
conjugate-gradient approach, but both methods
resulted in almost identical error rates. Backpropagation was slightly more accurate, making one
more correct prediction than did conjugate-gradient.
C.Basic Features of ANN
1. High computational rates due to massive parallel
processing.
2. Fault tolerance is high as damage to few nodes
doesnt significantly effect the overall
performance.
3. With Learning and Training feature the network
adopts itself based on the information received
by it in the past environment.
4. ANNs
feature Goal
seeking where
the
performance to achieve the goal is measured and
is used to self organizes the system.
5. They are Primitive Computational Elements as
each element resembles one simple logical
neuron and it cannot do much.
D. Objective of Neural Network:
The artificial neural network is composed of many
artificial neurons that are linked together according to
specific network architecture. The objective of the
neural network is to transform the inputs into
meaningful outputs.

Figure 3 Objective of Neural Network

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The artificial neuron given in figure 3 has N input,
denoted as x1, x2,..xm. Each line connecting these
inputs to the neuron is assigned a weight, which is
denoted as w1, w2, .wmrespectively. Weights in the
artificial model correspond to the synaptic connections
in biological neurons. The threshold in artificial
neuron is usually represented by and the activation
corresponding to the graded potential is given by the
formula:

III.

STOCK MARKET PREDICTION

It is the act of trying to determine the future value

of
a
company stock or
other financial
instrument traded on an exchange. The successful
prediction of a stock's future price could yield
significant
profit.
The efficient-market
hypothesis suggests that stock price movements are
governed by the random walk hypothesis and thus are
inherently unpredictable. Others disagree and those
with this viewpoint possess a myriad of methods and
technologies which purportedly allow them to gain
future price information. When applied to a particular
financial
instrument,
the random
walk
hypothesis states that the price of this instrument is
governed by a random walk and hence is
unpredictable. If the random walk hypothesis is false
then there will exist some (potentially nonlinear) correlation between the instrument price and
some other indicator(s) such as trading volumeor the
previous day's instrument closing price. If this
correlation can be determined then a potential profit
can be made.
A stock market is a public market for trading the
companys stocks and derivative at an approved stock
price. These are called securities, listed on a stock
exchange as well as an investor traded privately. In
the stock market also known as secondary market is
monitored by a regulatory body called SEBI (Security
and Exchange Board of India). It depends upon the
demand and supplies the prices are vary. The price
will high when the demand is high, when the share is
heavy to sell the decrease the price. This type of
transaction is called trading and the companies, which
are permitted to do the trading, are called Listed
companies.
IV.

USING ANNS IN FORECASTING STOCK

PRICES

An Artificial Neural Network is foundationon a

data processing system consisting of a large number
of simple highly interconnected processing elements
in an architecture inspired by the structure of the
cerebral cortex of the brain. A neural network is a
extraordinarilysimilarscattered process that has a

International Journal of Computing Algorithm (IJCOA)

Volume: 04, Special Issue: March 2015

ISSN: 2278-2397

natural tendency for storing experiential knowledge

and making it available for use. ANNs are among the
most effective learning methods to learn and interpret
complex real-world sensor data.
The learning methods are classified into three
categories i.e. supervised learning,unsupervised
learning and reinforced learning. The basic classes of
networks namely, single layer feed forward
network,multilayer feed forward network and
recurrent network.
An ANNs is able to form decision or achieve
stable configuration patterns, even if it is given
fuzzy or incomplete information.The following
informations of ANNs create them valuable and
attractive for a forecasting job.

It gives the ability to learn fromexperience and

provides a realisticpossible way to solve real
worldproblems.
ANNs can generalize and correctly infer the
unseen part of the data evenif the sample data
contain noisyinformation with least principle.
ANNs universal functional approximates and
provides a continuous function for a desired
accuracy.
ANN has the capacity of performing nonlinear
modeling without priori knowledge about the
relationship between input and output variables.
Therefore ANNs are a more general and flexible
modeling tool for forecasting.
V.

LITERATURE REVIEW

Mayankkumar B Patel,Sunil R Yalamalle [1]

examined that prediction provides knowledgeable
information regarding the current status of the stock
price movement. Stock market data are highly timevariant and are normally in a nonlinear pattern,
predicting the future price of a stock is highly
challenging. Prediction provides knowledgeable
information regarding the current status of the stock
price movement. Many different algorithms have
been used with neural network. Feedforward
MLP(Multi Layer Perceptron) neural network
technique is considered to predict the stock price of
companies listed under the index of NSE. From the
result it can be concluded that MLP (Multi Layer
Perceptron)neural network technique gives the
satisfactory output
Gitansh khirbat ,rahul gupta,sanjay singh,in
[2]takes into account factors like Earnings Per Share
(EPS) and public confidence and introduces an
empirically defined neural network architecture which
gives an optimized structure for predicting the future
value of a stock by extrapolating the near future value
by the present value comparisons. The experimental
results obtained after the training and testing of the
financial data are very promising. This increase in
accuracy of our financial prediction is due to the
factors incorporated for forecasting which can give a

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clear binary classification for buying or withholding
the stock in the current market scenario.
Binu Nair, Patturajan, M. ; Mohandas, V. in [3]
compares the effectiveness of different types of
Adaptive network architectures in one-step ahead
prediction of the daily returns of Bombay Stock
Exchange Sensitive Index (SENSEX). The
performance of each network is evaluated using 17
different performance measures to find the best
network architecture. Also, an empirical evaluation of
the weak form of Efficient Market Hypothesis (EMH)
for the data in reference is carried out here.
R.K. and Pawar D.D. in [4] predicated the stockrate
because it is a challenging and daunting task tofind
out which is more effective and accuratemethod so
that a buy or sell signal can be generatedfor given
stocks. Predicting stock index withtraditional time
series analysis has proven to bedifficult an artificial
neural network may be suitablefor the task. Neural
network has the ability toextract useful information
from large set of data. Inthis paper the author also
presented a literaturereview on application of artificial
neural network instock market Index prediction.
Halbert white in [5] reported some results of anongoing project using neural network modelingand
learning techniques to search for and decodenonlinear
regularities in asset price movements.Author, focus on
case of IBM common stock dailyreturns. Having to
deal with the prominent features ofeconomic data
highlights the role to be played bystatistical inference
and requires modifications tostandard learning
techniques that may prove usefulin other contexts.
Jing Tao Yao and chew Lim tan in [6] usedartificial
neural networks for classification,prediction and
recognition. Neural network trainingis an art. Trading
based on neural network outputs,or trading strategy is
also an art. Authors discuss aseven-step neural
network prediction modelbuilding approach in this
article. Pre and post dataprocessing/analysis skills,
data
sampling,
trainingcriteria
and
model
recommendation will also becovered in this article.
Tiffany Hui-Kuang and Kun-Huang Huarng in[7]
used neural network because of theircapabilities in
handling nonlinear relationship andalso implement a
new fuzzy time series model toimprove forecasting.
The fuzzy relationship is usedto forecast the Taiwan
stock index. In the neuralnetwork fuzzy time series
model where as insampleobservations are used for
training and outsampleobservations are used for
forecasting. Thedrawback of taking all the degree of
membershipfor training and forecasting may affect
theperformance of the neural network. To avoid
thistake the difference between observations.
Thesereduce the range of the universe of discourse.
Akinwale adio T, Arogundade O.T and
AdekoyaAdebayo F in [8] examined the use of error
backpropagation and regression analysis to predict
theuntranslated and translated Nigeria Stock
MarketPrice (NSMP). The author was used the
networktopology to adopt the five input variables.

International Journal of Computing Algorithm (IJCOA)

Volume: 04, Special Issue: March 2015

ISSN: 2278-2397

Thenumber of hidden neurons determined the

variables during the network selection. Both
theuntranslated
and
translated
statements
wereanalyzed and compared. The Performance
oftranslated NSMP using regression analysis or
errorpropagation
was
more
superior
to
untranslatedNSMP.
David Enke and Suraphan Thawornwong in
[9]used machine learning for data mining to
evaluatethe predictive relationship of numerous
financialand economic variables. Neural network
modelused for estimation and classification are
thenexamined for their ability to provide an
effectiveforecast of future values. A crossvalidationtechnique was used to improve the
generalizationability of several models. The trading
strategiesguided by classification models generate
higherrisk-adjusted profits than the buy-and-hold
strategyas well as guided by the level-estimation
basedforecast of the neural network and
regressionmodels. The author decides to deploy the
forecastthe stock dividends, transaction costs
andindividual-tax brackets to replicate the
realisticinvestment practices.
VI.

CONCLUSION

Stock market data are highly time-variant and are

normally in a nonlinear pattern, predicting the future
price of a stock is highly challenging. After studying
and analyzing all the papers mentioned in a literature
survey and review section we are motivated to study
the possibilities of applying other different types of
neural network in predicting the share market
prices.The future work is to compare the existing
algorithms andderive one new ANN model by using
clustering and back propagation method of ANN to
predict a stock.
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