Secondary factor induced stock index time-series prediction using Self-Adaptive Interval Type-2 Fuzzy Sets

The paper introduces an alternative approach to time-series prediction for stock index data using Interval Type-2 Fuzzy Sets. The work differs from the existing research on time-series prediction by the following counts. First, partitions of the time-series, obtained by fragmenting its valuation space over disjoint equal sized intervals, are represented by Interval Type-2 Fuzzy Sets (or Type-1 fuzzy sets in absence of sufficient data points in the partitions). Second, an Interval Type-2 (or type-1) fuzzy reasoning is performed using prediction rules, extracted from the (main factor) time-series. Third, a type-2 (or type-1) centroidal defuzzification is undertaken to determine crisp measure of inferences obtained from the fired rules, and lastly a weighted averaging of the defuzzified outcomes of the fired rules is performed to predict the time-series at the next time point from its current value. Besides the above three main prediction steps, the other issues considered in the paper include: (i) employing a new strategy to induce the main factor time-series prediction by its secondary factors (other reference time-series) and (ii) self-adaptation of membership functions to properly tune them to capture the sudden changes in the main-factor time-series. Performance analysis undertaken reveals that the proposed prediction algorithm outperforms existing algorithms with respect to root mean-square error by a large margin (?23%). A statistical analysis undertaken with paired t-test confirms that the proposed method is superior in performance at 95% confidence level to most of the existing techniques with root mean square error as the key metric.