Integrated Intelligent Research(IIR) International Journal of Business Intelligent

Volume: 04 Issue: 01 June 2015,Pages No.22- 25

ISSN: 2278-2400

Prediction of Stock using Artificial Neural

Networks (A Survey)
G.Sundar1, K.Satyanarayana2
1
Research Scholar, Bharath University, Chennai
Principal &Prof, Dept of Computer Science,Sindhi College,Chennai
Email: sundarganapathy66@gmail.com, ks62@rediffmail.com

Abstract-Supreme prediction of stock price revolutionizes is
vastly tricky and momentous information for investors. The
use of artificial neural networks has found a variegated field of
applications in the present world. This has led to the develop-
ment of various models for financial markets and investment.
To outline the design of Artificial Neural Network model with
its features and various parameters. Investors need to under-
stand that stock price data is the most important information
which is highly impulsive,a non-parametric and are affected
by many suspicions an interrelated economic and political fac-
tor across the globe. Neural Networks can be used as a better
substitute technique for forecasting the daily stock market
prices. This study demonstrates the literature analysis of
prophecy in stock market.
Keywords: Artificial Neural Networks (ANNs), Forecasting,
Stock Price, Prediction methods
inputs and after processing with an activation function called
transfer function yields a distinct output. The most commonly
used transfer functions include, the hardlimit, the purelinear,
the sigmoid and the tan sigmoid function.ANNs are considered
nonlinear statistical data modeling tools where the complex re-
lationships between inputs and outputs are modeled or patterns
are found.
II. ARTIFICIAL NEURON NETWORK
An artificial neuron network (ANN) is a computational model
based on the structure and functions of biological neural net-
works. Information that flows through the network affects the
structure of the ANN because a neural network changes - or
learns, in a sense - based on that input and output.

I. INTRODUCTION
Artificial Neural Network(ANN)conceptions used over the last
few years and applied to different problem domains as finance,
medicine,manufacturing,geology and physics. Stock market is
one of the major investments for backer for the past 20 years.
The Bombay Stock Exchange (BSE) is one of the India’s major
stock exchange and the oldest exchanges across the world. To
guess the closing price of stock market with reference to some
companies listed under BSE using artificial neural network
many methods have been made on stock market to predict the
stock prices. ANN helped researcher in developing many
model using deep-rooted, technical and time series in forecast-
ing the competitive predictions of stock price for the in-
vestors.The ANNs have the ability to determine the nonlinear
Figure 1
relationship in the input data set without a priori assumption of
Formation of ANN
familiarity of relation between the input and theoutput. Hence
ANNs match well than any other reproduction in predictthe In Figure 1 various inputs to the network are represented by the
stock price.Neural Network is extremely appropriate for resem- mathematical symbol, x(n). Each of these inputs is multiplied
bling Fuzzy Controllers and other types of Fuzzy Expert Sys- by a connection weight. These weights are represented by w(n).
tems. The concept of Artificial Neural Network (ANN) begins In the simplest case, these products are simply summed, fed
with the functions of human brain. Human brain consists of ap- through a transfer function to generate a result, and then output.
proximately 10 billion neurons (nerve cells) and 6000 times as This process lends itself to physical implementation on a large
many connections between them. ANN as motivated by bio- scale in a small package. This electronic implementation is still
logical nervous systems, process information supplied, with a possible with other network structures which utilize different
large number of highly interconnected processing neurons. summing functions as well as different transfer functions.
ANN may be considered as a data processing technique that
A. Layers in ANN
maps or relates some type of input stream of information to an
output stream of data.ANN consists of neurons (nodes) distrib- ANNs have three layers that are interconnected. The first layer
uted across layers. The way these neurons are distributed and consists of input neurons. Those neurons send data on to the
connected with each other defines the architecture of the net- second layer, which in turn sends the output neurons to the
work. The connection between the neurons is attributed by a third layer.
weight. Each neuron is a processing unit that takes a number of
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Integrated Intelligent Research(IIR)
Figure 2 Layers in ANN
Figure. 2A shows a neuron. The activation function is usually
non linear, with a sigmoid shape (e.g., logistic or hyperbolic
tangent function). A simple network having the universal ap-
proximation property (i.e., the capability of approximating a
non linear map as precisely as needed, by increasing the num-
ber of parameters) is the feed forward MLP(Multi Layer Per-
ceptron) with a single hidden layer, shown in Figure. 2B.
B. Methods of ANN Learning
Learning based solutions can becategorized as:
Supervised or associative learning. Where the net is trained by
quantifying input, as well as matching output patterns.These in-
put/output pairs may either be provided by an external teaching
component, or by the net itself (self-supervisedapproach).
Unsupervised learning (self-organizing paradigm). Where the
net (output) unit is trained to respond to clusters ofpattern
within the input framework. In this paradigm, the system is
supposed to discover statistically salient features ofthe input
population. Compared to the supervised learning method, there
is no a priori set of categories into which thepatterns are to be
classified, rather the system has to develop its own representa-
tion of the input stimuli. For supervisedand unsupervised learn-
ing methods, basically all the learning rules reflect a variant of
the Hebbian learning rule.
Reinforcement Learning. Where the net applies a learning
paradigm that is considered an intermediate form of theabove
2 types of learning. In this method, the learning machine
executes some action on the environment, and as aresult,
receives some feedback/response. The learning component
grades its action (as either good or bad) based on
theenvironmental response, and adjusts its parameters
accordingly. Generally speaking, the parameter adjustment
processis continued until an equilibrium state surfaces where
no further adjustments are necessary
Back-propagation and the conjugate-gradient method(also
known as MLP –Multi Layer Perceptron) work by iteratively
training the network using the presented training data. On each
iteration (or epoch), the entire training set is presented to the
network, one case at a time. In order to update the weights a
cost function is determined in terms of the weights and its de-
rivative (or gradient) with respect to each weight is estimated
[10]. Weights are updated following the direction of steepest
descent of the cost function. A common cost function and the
one used in this work is the Root Mean Squared ( RMS) error.
During experimentation with the two methods back-propaga-
tion was a little slower to learn that the conjugate-gradient ap-
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International Journal of Business Intelligent
Volume: 04 Issue: 01 June 2015,Pages No.22- 25
ISSN: 2278-2400
proach, but both methods resulted in almost identical error
rates. Back-propagation was slightly more accurate, making
one more correct prediction than did conjugate-gradient.
C.Basic Features of ANN
1. High computational rates due to massive parallel
processing.
2. Fault tolerance is high as damage to few nodes doesn’t
significantly effect the overall performance.
3. With Learning and Training feature the network adopts
itself based on the information received by it in the past
environment.
4. ANN’s feature Goal seeking where the performance to
achieve the goal is measured and is used to self organizes
the system.
5. They are Primitive Computational Elements as each
element resembles one simple logical neuron and it
cannot do much.
D. Objective of Neural Network:
The artificial neural network is composed of many artificial
neurons that are linked together according to specific network
architecture. The objective of the neural network is to trans-
form the inputs into meaningful outputs.
Figure 3 Objective of Neural Network
The artificial neuron given in figure 3 has N input, denoted as
x1, x2,…..xm. Each line connecting these inputs to the neuron is
assigned a weight, which is denoted as w1, w2, ….wmrespec-
tively. Weights in the artificial model correspond to the synap-
tic connections in biological neurons. The threshold in artifi-
cial neuron is usually represented by θ and the activation
Фcorresponding to the graded potential is given by the for-
mula:
III. STOCK MARKET PREDICTION 
It is the act of trying to determine the future value of a com-
pany stock or other financial instrument traded on an exchange.
The successful prediction of a stock's future price could yield
significant profit. The efficient-market hypothesis suggests that
stock price movements are governed by the random walk hy-
pothesis and thus are inherently unpredictable. Others disagree
and those with this viewpoint possess a myriad of methods and
technologies which purportedly allow them to gain future price
information. When applied to a particular financial instrument,
the random walk hypothesis states that the price of this instru-
ment is governed by a random walk and hence is unpredictable.
If the random walk hypothesis is false then there will exist
some (potentially non-linear) correlation between the instru-
 Integrated Intelligent Research(IIR)
ment price and some other indicator(s) such as trading vol-
umeor the previous day's instrument closing price. If this corre-
lation can be determined then a potential profit can be made.A
stock market is a public market for trading the company’s
stocks and derivative at an approved stock price. These are
called securities, listed on a stock exchange as well as an in-
vestor traded privately. In the stock market also known as sec-
ondary market is monitored by a regulatory body called SEBI
(Security and Exchange Board of India). It depends upon the
demand and supplies the prices are vary. The price will high
when the demand is high, when the share is heavy to sell the
decrease the price. This type of transaction is called trading and
the companies, which are permitted to do the trading, are called
“Listed companies”.
IV. USING ANNS IN FORECASTING STOCK PRICES
An Artificial Neural Network is foundationon a data processing
system consisting of a large number of simple highly intercon-
nected processing elements in an architecture inspired by the
structure of the cerebral cortex of the brain. A neural network
is a extraordinarilysimilarscattered process that has a natural
tendency for storing experiential knowledge and making it
available for use. ANNs are among the most effective learning
methods to learn and interpret complex real-world sensor data.
The learning methods are classified into three categories i.e. su-
pervised learning,unsupervised learning and reinforced learn-
ing. The basic classes of networks namely, single layer feed
forward network,multilayer feed forward network and recurrent
network.An ANNs is able to form decision or achieve stable
configuration patterns, even if it is given “fuzzy” or incomplete
information.The following information’s of ANNs create them
valuable and attractive for a forecasting job.
 It gives the ability to learn fromexperience and provides a
realisticpossible way to solve real worldproblems.
 ANNs can generalize and correctly infer the unseen part
of the data evenif the sample data contain
noisyinformation with least principle.
 ANN’s universal functional approximates and provides a
continuous function for a desired accuracy.
 ANN has the capacity of performing nonlinear modeling
without priori knowledge about the relationship between
input and output variables. Therefore ANNs are a more
general and flexible modeling tool for forecasting.
V. LITERATURE REVIEW
Mayankkumar B Patel,Sunil R Yalamalle [1] examined that
prediction provides knowledgeable information regarding the
current status of the stock price movement. Stock market data
are highly time-variant and are normally in a nonlinear pattern,
predicting the future price of a stock is highly challenging. Pre-
diction provides knowledgeable information regarding the cur-
rent status of the stock price movement. Many different algo-
rithms have been used with neural network. Feedforward
MLP(Multi Layer Perceptron) neural network technique is con-
sidered to predict the stock price of companies listed under the
index of NSE. From the result it can be concluded that MLP
(Multi Layer Perceptron)neural network technique gives the
satisfactory output
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International Journal of Business Intelligent
Volume: 04 Issue: 01 June 2015,Pages No.22- 25
ISSN: 2278-2400
Gitansh khirbat ,rahul gupta,sanjay singh,in [2]takes into
account factors like Earnings Per Share (EPS) and public confi-
dence and introduces an empirically defined neural network ar-
chitecture which gives an optimized structure for predicting the
future value of a stock by extrapolating the near future value by
the present value comparisons. The experimental results ob-
tained after the training and testing of the financial data are
very promising. This increase in accuracy of our financial pre-
diction is due to the factors incorporated for forecasting which
can give a clear binary classification for buying or withholding
the stock in the current market scenario.
Binu Nair, Patturajan, M. ; Mohandas, V. in [3] compares
the effectiveness of different types of Adaptive network archi-
tectures in one-step ahead prediction of the daily returns of
Bombay Stock Exchange Sensitive Index (SENSEX). The per-
formance of each network is evaluated using 17 different per-
formance measures to find the best network architecture. Also,
an empirical evaluation of the weak form of Efficient Market
Hypothesis (EMH) for the data in reference is carried out here.
R.K. and Pawar D.D. in [4] predicated the stockrate because it
is a challenging and daunting task tofind out which is more ef-
fective and accuratemethod so that a buy or sell signal can be
generatedfor given stocks. Predicting stock index withtradi-
tional time series analysis has proven to bedifficult an artificial
neural network may be suitablefor the task. Neural network has
the ability toextract useful information from large set of data.
Inthis paper the author also presented a literaturereview on ap-
plication of artificial neural network instock market Index pre-
diction.
Halbert white in [5] reported some results of anon-going
project using neural network modelingand learning techniques
to search for and decodenonlinear regularities in asset price
movements.Author, focus on case of IBM common stock dai-
lyreturns. Having to deal with the prominent features ofeco-
nomic data highlights the role to be played bystatistical infer-
ence and requires modifications tostandard learning techniques
that may prove usefulin other contexts.
Jing Tao Yao and chew Lim tan in [6] usedartificial neural
networks for classification,prediction and recognition. Neural
network trainingis an art. Trading based on neural network out-
puts,or trading strategy is also an art. Authors discuss aseven-
step neural network prediction modelbuilding approach in this
article. Pre and post dataprocessing/analysis skills, data sam-
pling, trainingcriteria and model recommendation will also be-
covered in this article.
Tiffany Hui-Kuang and Kun-Huang Huarng in[7] used neu-
ral network because of theircapabilities in handling nonlinear
relationship andalso implement a new fuzzy time series model
toimprove forecasting. The fuzzy relationship is usedto forecast
the Taiwan stock index. In the neuralnetwork fuzzy time series
model where as insampleobservations are used for training and
outsampleobservations are used for forecasting. Thedrawback
of taking all the degree of membershipfor training and forecast-
ing may affect theperformance of the neural network. To avoid
thistake the difference between observations. Thesereduce the
range of the universe of discourse.
Integrated Intelligent Research(IIR)
Akinwale adio T, Arogundade O.T and AdekoyaAdebayo F
in [8] examined the use of error backpropagation and regres-
sion analysis to predict theuntranslated and translated Nigeria
Stock MarketPrice (NSMP). The author was used the network-
topology to adopt the five input variables. Thenumber of hid-
den neurons determined the variables during the network selec-
tion. Both theuntranslated and translated statements wereana-
lyzed and compared. The Performance oftranslated NSMP us-
ing regression analysis or errorpropagation was more superior
to untranslatedNSMP.
David Enke and Suraphan Thawornwong in [9]used ma-
chine learning for data mining to evaluatethe predictive rela-
tionship of numerous financialand economic variables. Neural
network modelused for estimation and classification are
thenexamined for their ability to provide an effectiveforecast of
future values. A cross-validationtechnique was used to improve
the generalizationability of several models. The trading strate-
giesguided by classification models generate higherrisk-ad-
justed profits than the buy-and-hold strategyas well as guided
by the level-estimation basedforecast of the neural network and
regressionmodels. The author decides to deploy the forecastthe
stock dividends, transaction costs andindividual-tax brackets to
replicate the realisticinvestment practices.
VI. CONCLUSION
Stock market data are highly time-variant and are normally in a
nonlinear pattern, predicting the future price of a stock is highly
challenging. After studying and analyzing all the papers men-
tioned in a literature survey and review section we are moti-
vated to study the possibilities of applying other different types
of neural network in predicting the share market prices.The fu-
ture work is to compare the existing algorithms andderive one
new ANN model by using clustering and back propagation
method of ANN to predict a stock.
International Journal of Business Intelligent
Volume: 04 Issue: 01 June 2015,Pages No.22- 25
ISSN: 2278-2400
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