Rule inference for financial prediction using recurrent neural networks

The paper considers the prediction of noisy time series data, specifically, the prediction of foreign exchange rate data. A novel hybrid neural network algorithm for noisy time series prediction is presented which exhibits excellent performance on the problem. The method is motivated by consideration of how neural networks work, and by fundamental difficulties with random correlations when dealing with small sample sizes and high noise data. The method permits the inference and extraction of rules. One of the greatest complaints against neural networks is that it is hard to figure out exactly what they are doing-this work provides one answer for the internal workings of the network. Furthermore, these rules can be used to gain insight into both the real world system and the predictor. The paper focuses on noisy time series prediction and rule inference-use of the system in trading would typically involve the utilization of other financial indicators and domain knowledge.