A GENERAL APPROACH BASED ON AUTOCORRELATION TO DETERMINE INPUT VARIABLES OF NEURAL NETWORKS FOR TIME SERIES FORECASTING

Input selection is probably one of the most critical decision issues in neural network designing, because it has a great impact on forecasting performance. Among the many applications of artificial neural networks to finance, time series forecasting is perhaps one of the most challenging issues. Considering the features of neural networks, we propose a general approach called Autocorrelation Criterion (AC) to determine the inputs variables for a neural network. The purpose is to seek optimal lag periods, which are more predictive and less correlated. AC is a data-driven approach in that there is no prior assumption about the models for time series under study. So it has extensive applications and avoids a lengthy experimentation and tinkering in input selection. We apply the approach to the determination of input variables for foreign exchange rate forecasting and conduct comparisons between AC and information-based in-sample model selection criterion. The experiment results show that AC outperforms inf