Computational Intelligence Prediction Model Integrating Empirical Mode Decomposition, Principal Component Analysis, and Weighted k -Nearest Neighbor

Abstract

On the basis of machine leaning, suitable algorithms can make advanced time series analysis. This paper proposes a complex k-nearest neighbor (KNN) model for predicting financial time series. This model uses a complex feature extraction process integrating a forward rolling empirical mode decomposition (EMD) for financial time series signal analysis and principal component analysis (PCA) for the dimension reduction. The information-rich features are extracted then input to a weighted KNN classifier where the features are weighted with PCA loading. Finally, prediction is generated via regression on the selected nearest neighbors. The structure of the model as a whole is original. The test results on real historical data sets confirm the effectiveness of the models for predicting the Chinese stock index, an individual stock, and the EUR/USD exchange rate.