Grey system based novel approach for stock market forecasting
Abstract
Purpose
Making decisions in finance have been regarded as one of the biggest challenges in the modern economy today; especially, analysing and forecasting unstable data patterns with limited sample observations under the numerous economic policies and reforms. The purpose of this paper is to propose suitable forecasting approach based on grey methods in short-term predictions.
Design/methodology/approach
High volatile fluctuations with instability patterns are the common phenomenon in the Colombo Stock Exchange (CSE), Sri Lanka. As a subset of the literature, very few studies have been focused to find the short-term forecastings in CSE. So, the current study mainly attempted to understand the trends and suitable forecasting model in order to predict the future behaviours in CSE during the period from October 2014 to March 2015. As a result of non-stationary behavioural patterns over the period of time, the grey operational models namely GM(1,1), GM(2,1), grey Verhulst and non-linear grey Bernoulli model were used as a comparison purpose.
Findings
The results disclosed that, grey prediction models generate smaller forecasting errors than traditional time series approach for limited data forecastings.
Practical implications
Finally, the authors strongly believed that, it could be better to use the improved grey hybrid methodology algorithms in real world model approaches.
Originality/value
However, for the large sample of data forecasting under the normality assumptions, the traditional time series methodologies are more suitable than grey methodologies; especially GM(1,1) give some dramatically unsuccessful results than auto regressive intergrated moving average in model pre-post stage.
Keywords
Citation
Rathnayaka, R.M.K.T., Seneviratna, D.M.K.N. and Jianguo, W. (2015), "Grey system based novel approach for stock market forecasting", Grey Systems: Theory and Application, Vol. 5 No. 2, pp. 178-193. https://doi.org/10.1108/GS-04-2015-0014
Publisher
:Emerald Group Publishing Limited
Copyright © 2015, Emerald Group Publishing Limited