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On the investigation of hyper-heuristics on a financial forecasting problem

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Abstract

Financial forecasting is a really important area in computational finance, with numerous works in the literature. This importance can be reflected in the literature by the continuous development of new algorithms. Hyper-heuristics have been successfully used in the past for a number of search and optimization problems, and have shown very promising results. To the best of our knowledge, they have not been used for financial forecasting. In this paper we present pioneer work, where we use different hyper-heuristics frameworks to investigate whether we can improve the performance of a financial forecasting tool called EDDIE 8. EDDIE 8 allows the GP (Genetic Programming) to search in the search space of indicators for solutions, instead of using pre-specified ones; as a result, its search area has dramatically increased and sometimes solutions can be missed due to ineffective search. We apply 14 different low-level heuristics to EDDIE 8, to 30 different datasets, and examine their effect to the algorithm’s performance. We then select the most prominent heuristics and combine them into three different hyper-heuristics frameworks. Results show that all three frameworks are competitive, and are able to show significantly improved results, especially in the case of best results. Lastly, analysis on the weights of the heuristics shows that there can be a constant swinging among some of the low-level heuristics, which denotes that the hyper-heuristics frameworks are able to ‘know’ the appropriate time to switch from one heuristic to the other, based on their effectiveness.

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Authors and Affiliations

  1. School of Computer Science and Electronic Engineering, University of Essex, Essex, UK

    Michael Kampouridis

  2. College of Computer and Information Sciences (CCIS), Imam Muhammad Bin Saud Islamic University, Riyadh, Kingdom of Saudi Arabia

    Abdullah Alsheddy

  3. Centre for Computational Finance and Economic Agents, School of Computer Science and Electronic Engineering, University of Essex, Essex, UK

    Edward Tsang

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  1. Michael Kampouridis
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  2. Abdullah Alsheddy
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  3. Edward Tsang
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Correspondence to Michael Kampouridis.

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Kampouridis, M., Alsheddy, A. & Tsang, E. On the investigation of hyper-heuristics on a financial forecasting problem. Ann Math Artif Intell 68, 225–246 (2013). https://doi.org/10.1007/s10472-012-9283-0

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  • DOI: https://doi.org/10.1007/s10472-012-9283-0

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