Consider the monthly simple returns of GE stock from January 1926 to December 2003. Use the last
Question:
Consider the monthly simple returns of GE stock from January 1926 to December 2003. Use the last three years of data for forecasting evaluation.
(a) Using lagged returns rt−1,rt−2,rt−3 as input, build a 3-2-1 feedforward network to forecast 1-step ahead returns. Calculate the mean squared error of forecasts.
(b) Again, use lagged returns rt−1,rt−2,rt−3 and their signs (directions) to build a 6-5-1 feed-forward network to forecast the 1-
step ahead direction of GE stock price movement with 1 denoting upward movement. Calculate the mean squared error of forecasts.
Note: Let rtn denote a time series in S-Plus. To create a direction variable for rtn, use the command drtn=ifelse(rtn>0,1,0)
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