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Wavelet Approach to Chaotic Forecasting of Stock Movement

Yoshiyuki Matsumoto

Shimonoseki City University

Junzo Watada

Waseda University

ABSTRACT

A chaotic method is employed to forecast a near future of uncertain phenomena. The method makes it possible by restructuring an attractor of given time-series data in a multi-dimensional space through Takens' embedding theory. However, many economical time-series data are not sufficiently chaotic. In other words, it is hard to forecast the future trend of such economical data on the basis of chaotic theory. In this paper, time-series data are divided into wave components using wavelet transform. It is shown that some divided components of time-series data show much more chaotic in the sense of correlation dimension than the original time-series data. The highly chaotic nature of the divided component enables us to precisely forecast the value or the movement of the time-series data in a near future. The up and down movement of TOPICS value is shown as highly predicted by this method as 70%.

Keywords: Chaos theory, Short-term forecasting, Wavelet transform.