Neural Networks in Finance

6 Times Series: Examples from Industry and Finance

This chapter moves the analysis away from artificially generated data to real-world data, to see how well the neural network model performs relative to the linear model. We focus on three examples: one from industry, the quantity of automobiles manufactured in the United States; one from finance, the spreads and the default rate on high-yield corporate bonds; and one from macroeconomics, forecasting inflation rates. In all three cases we use monthly observations.

Neural networks, of course, are routinely applied to forecasting very high-frequency data, such as daily exchange rates or even real-time share-market prices. However, in this chapter we show how the neural network performs when applied ...