Stock Price Forecasting Using Exogenous Time Series and
Combined Neural Networks
Manoel C. Amorim Neto, Victor M. O. Alves, Gustavo Tavares,
Lenildo Aragão Junior, George D. C. Cavalcanti and Tsang Ing Ren
Abstract— Time series forecasting is useful in many re-
searches areas. The use of models that provide a reliable
prediction in financial time series may to bring valuable profits
for the investors. An intelligent agent can be built from a
suitable prediction model, to make operations in stock market
daily. Furthermore, even that the investor had caution about
the use of an automatic agent to make operations he can to
use the prediction model as a valuable decision support. A
methodology based on information obtained from exogenous
series was used in combination with a neural network to predict
stock series. Exogenous series were selected by analyzing the
correlation between the series with the stocks series used. In
this way, the prediction was obtained by not just using the
previous values of the series but also by using information
external to the main series. Additionally, the best trained neural
networks were used in a combination to improve the prediction
capacity of single networks. To evaluate the proposed models
for prediction, some known metrics were used plus a proposed
one - Prediction in Direction and Accuracy (PDA), which uses
some features to determine if a model has a great accuracy and
trend in prediction. Through this novel metric, we have used
an evolutionary algorithm to choose the best trained models
in order to obtain better results. Experiments with two of the
most important Brazilian companies’ stock quotes have shown
the usefulness of the proposed prediction system to generate
profits in investments.
I. I NTRODUCTION
Time series are sets of variables observed over a defined
period of time. These observations may be discrete or con-
tinuous and they are taken in an equal time interval [1].
There are many research areas involving time series anal-
ysis, such economy, physics, engineering, social sciences,
computing, biology, medicine, meteorology and others.
Perhaps the most applied analysis of a time series is in pre-
diction. The prediction can be made using past observations
of the series that will be forecast or even other time series.
These different ones used to predict the main are know as
Exogenous Time Series.
There are two types of models in time series predic-
tion: linear and non-linear. A known linear method is the
ARIMA, proposed by Bob and Jenkins [2]. Some examples
of non-linear models are: bilinear, exponential autoregressive,
threshold autoregressive, smooth transition autoregressive,
autoregressive with time dependent coefficients [3], autore-
gressive conditional heteroscedasticity (ARCH) and general
Manoel C. Amorim Neto, Gustavo Tavares, Victor M.
O. Alves are with the Facilit Technology Company, Brazil,
{manoel,gustavotavares,victor}@facilit.com.br. Site: www.aistocktrend.com
George D. C. Cavalcanti and Tsang Ing Ren are with the Center of Infor-
matics, Federal University of Pernambuco, Brazil, {gdcc,tir}@cin.ufpe.br.
Site: www.cin.ufpe.br/∼viisar
autoregressive conditional heteroscedasticity (GARCH) [1]
among other models.
Artificial neural networks (ANN) for time series prediction
have been successfully used in the last years, because of
some interesting features such as universality in function
approximations, robustness and fault tolerance [4]. For these
reasons, neural networks are considered useful to build
models for prediction of non-stationary time series [4].
Furthermore, ANN handles well noise data and it is able
to predict nonlinear systems, which are the type of systems
that we are interested to predict, the stock market. Among the
various ANN models, the most used in literature is multilayer
perceptron (MLP) [5]. Radial basis function (RBF), wavelet-
based and recurrent neural networks have been also applied
with success [6].
Stock Market is a complex system composed of many
investors selling and buying financial products in form of
securities. Here, we are interested in the prediction of stocks
of the biggest Brazilian oil Company, Petrobras, and one
of the biggest miners companies of the world, Vale do Rio
Doce. The Petrobras stock index is named PETR4 and the
Vale do Rio Doce is named VALE5. These time series were
analyzed between the years of 2003 and 2009.
In this paper, a comparison between two models of ANN,
named MLP and RBF networks, both with and without ex-
ogenous time series are presented. Additionally, we propose
a novel performance metric to select the best trained models,
which aims to maximize trend prediction and accuracy. The
propose metric was used for selection of the best trained
networks to be combined in a combination machine.
This paper is organized as follows. Section II describes
briefly the stock market and the exogenous time series used.
Section III presents the performance metrics which were
used and the novel introduced metric. Section IV presents
the proposed methods for combining neural networks in a
combination machine. Section V describes the experiments
and results obtained. Finally, the Section VI presents the
conclusions and final remarks.
II. T HE S TOCK M ARKET AND E XOGENOUS T IME S ERIES
The main function of the capital market is the trade of
stocks with the purpose of finance development, which in its
turn produce and nourish the market itself. On this way, a
third function is attributed: the market of its own sources of
incomes [7]. The monetary market, as a whole, is important
for the economic development. However, when the economy
and the market develops, the market of the source of capital
emerges, which are the stock market, debt titles and real
estate market.
Globalization is a trend that allows an intense interchange
between countries. Consequently, it is common nowadays
that the stock market of an emergent country like Brazil
attain an increasing importance in the international scenario.
Today the stock market is not only an important source
of corporation finance but also an individual capitalization
resource. When investing in a portfolio, the investor wishes
to obtain a large return in other to compensate the risks
associated, in other words, the objective is to minimize risk
and maximize capital returns. Hence, a prediction method is
most useful and a neural network is well-suited for this kind
of optimization procedure.
Currently, the Brazilian stock market, which is also known
in the World Federation of Exchange (WFE) by São Paulo
SE, has a global importance. From the 51 stocks monitored
by WEF, BOVESPA was in eighth position among the
biggest stock market in the world in terms of capitalization
and stock values, in a ranking for developing countries. Two
of the biggest companies in the BOVESPA stock market are
the Petrobras oil company and Vale do Rio Doce, which
makes them ideal stocks to be analyzed. For the professional
investor to understand the behavior of a stock, at least five
series are necessary:
1) The highest value that the stock was negotiated in a
certain day.
2) The lowest value that the stock was negotiated during
the same day.
3) The value of the first negotiation of the day: opening
price.
4) The value of the last negotiation of the day: closing
price.
5) The business volume of the stock during the same day.
The closing prize is the series that is really important, since
III. P ERFORMANCE M EASUREMENT OF P REDICTION
M ODELS
There are several metrics used to evaluate models of
time series forecasting. In this paper we have employed five
metrics that are commonly used in literature: MSE, MAPE,
POCID, THEIL (or NMSE) and ARV. Additionally, it was
used SLG, which was proposed by Amorim Neto [8], and
a novel metric proposed in this work, named Prediction in
Direction and Accuracy (PDA).
A simple measure to evaluate the accuracy of a forecasting
model is the diference between the expected value and the
output value of model. From Equation 1, Tt is a expected
value and Yt is the output of the forecast model, and et is
the calculed error, both at time t. Consider this measure as
a basis for the others.
et = |Tt − Yt | (1)
The performance measurement metrics used in this work
are briefly described here. Consider for every metric: Tt as
the desired output of the forecasting model at time t and
Yt as the output of the proposed model and N as the total
amount of available patterns.
A. MSE (Mean Squared Error)
The Mean Squared Error is the most known metric to
evaluate the performance of forecasting models. It is defined
as:
N
1 X
M SE = (et )2 (2)
N t=1
B. MAPE (Mean Absolute Percent Error)
The Mean Absolute Percent Error measure the accuracy
of model in percentage. It is defined as:
most of the professional investors and financial institutions N  
1 X  et 
take action based on its value. M AP E = (3)
N t=1  Yt 
From the methods for forecasting time series, the choice
of the input variables is an important step. In this work, A lower value of MAPE is the desired result from a
we are interested in the prediction of the stocks quotations prediction method.
of PETR4 and VALE5. To predict these stock values, we C. THEIL or NMSE (Normalized Mean Squared Error)
have used exogenous time series that were chosen based
The Normalized Mean Squared Error evaluate the relation-
on the autocorrelation analyzes, similarly to work done
ship of the model with the random walk model. Equation 4
previously [8].
defines this value.
For the Petrobras Company (PETR4) the exogenous time
series utilized were: Dollar, IBOV, CLF, NSY:PBR, DAX PN
and SP500. t=1 (et )2
T HEIL = PN (4)
Dollar time series is the Brazilian Real quotation converted t=1 (Yt − Yt−1 )2
to United States Dollar. IBOV is the BOVESPA quotation. When THEIL is equal to one, the proposed model is
CLF is the Crude Light Oil Future quotation. NSY:PBR is equivalent to random walk model. The random walk model
the quotation of Brazilian Oil. DAX is the German stock proposes that the time series future value is equal to the
market index. SP500 is the S&P 500 index. current value. If THEIL is lower than one, then the proposed
For the Vale do Rio Doce Company (VALE5) the exoge- model is better than random walk model. If THEIL is greater
nous time series used were: Dollar and IBOV. This stocks than one, then the proposed model has a performance worse
were chosen based on economic analyzes [8]. than random walk model.
D. POCID (Prediction On Change In Direction)
POCID is the percentage of the correct trend of the model
relative to the trend of expected value. This metric is defined
by Equation 5.
PN
t=1 Dt
P OCID =100
N 
The value of Dt is defined by Equation 6

1, if (Tt − Tt−1 )(Yt − Yt−1 ) > 0,
Dt = 0, otherwise.
E. ARV (Average Relative Variance)
The Average Relative Variance evaluates the relationship
of the model with the other model, which proposes that the
time series future value is equal to the arithmetic mean of
the past values. It is defined as:
PN
t=1 (et )2
ARV = PN
t=1 (Yt − T )2
When ARV is equal to one, the proposed model is equiv-
alent to the mean of past values. If ARV is lower than one,
then the proposed model is better than the mean of past
values. If the ARV is greater than one, the proposed model
has a performance worse than mean of past values.
F. SLG (Sum of Losses and Gains)
The SLG was proposed by Amorim Neto [8] and was
inspired by POCID. It defined as the mean of the losses and
gains of the model. The SLG measurement is defined by
Equation 8:
PN
t=1 Lt
SLG =
N Networks [4], and Multi-layer Perceptron (MLP) and Radial
In Equation 8, the value of Lt is defined by Equation 9

+ |(Tt − Tt−1 )| , if (Tt − Tt−1 )(Yt − Yt−1 ) > 0
Lt = − |(Tt − Tt−1 )| , otherwise.
SLG less than zero indicates financial losses.
G. Prediction in Direction and Accuracy (PDA)
PDA is the novel metric proposed in this paper. The
objective is to benefit models of forecasting with the better
behavior in trend and accuracy. This is possible by the
maximization of POCID and the minimization relative error.
The accuracy of a model is measured by maximum relative
error. The best behavior in trend and the most accurate
model will have a higher value of PDA. In other words,
the higher the value of PDA implies in a better model.
It is a improvement of the SLG metric. This model is
mathematically described in Equations 10 and 11.
PN
Gt
t=1
P DA = (10)
N
where Gt is defined in Equation 11 :
(5) 
1− ret
, if (Dt = 1) and ret < remax ,
remax
0, if (Dt = 1) and ret ≥ remax ,

Gt = −1 + rere t
, if (Dt = 0) and ret < remax ,
(11)
 max
−1, if (Dt = 0) and ret ≥ remax

where Dt is defined by Equation 12, ret = Tett and
(6)
remax = 0.02. This constant value is the relative maximum
error accepted by the prediction. In this case, the maximum
tolerance is 2% error.

1, if (Tt − Tt−1 )(Yt − Yt−1 ) > 0,
Dt = 0, otherwise.
(12)
If the models have a right prediction in direction (Dt =
1) and the relative error is lower than maximum error then
(7)
1 − rere t
max
is added; if the models have a right prediction in
direction (Dt = 1) but the relative error is greater or equal
than the maximum error then nothing is added; if the model
has a wrong prediction in direction (Dt = 0) and the relative
error is lower than maximum error then −1+ rere t
is added;
max
if the model have a wrong prediction (Dt = 0) in direction
and the relative error is greater or equal than maximum error
then −1 is added. After the summation, the mean is calculed.
IV. N EURAL N ETWORKS C OMBINATION
Neural Network is a stochastic mathematical model that
aims to simulate the functionality of a biological network.
A Neural Network is formed by a set of connected neurons
organized in layers. Each neuron can be considered a com-
(8) putational processing unit. There are several kinds of Neural
Basis Function (RBF) were used in this paper.
The training of MLPs using exogenous time series im-
proves the ability of the model in forecasting, as it has
been was demonstrated by Amorim Neto [8]. Additionally,
(9) a combination of MLPs trained with exogenous time series
improves the single MLP performance [8].
A combination of neural networks is an architecture which
uses a set of trained models and combines the outputs of
these models, in the same input, in a unique system. The
combination architecture used here is depicted in Figure 1.
This paper presents two ways to choose the neural net-
works which will integrate the combination: (i) the selection
of the best networks through PDA, and (ii) selection through
an evolutionary algorithm. The details are in the Section V.
V. E XPERIMENTS
This Section describes all experiments performed to eval-
uate the prediction metric and methods describe above.
 TABLE II
D ISTRIBUTION OF STOCK QUOTES PER PATTERN IN THE DATABASES
WITH EXOGENOUS .

PETR4 database VALE5 database

Stock Lag Stock Lag
PETR4 close -1 VALE5 close -1
PETR4 close -2 VALE5 close -2
PETR4 close -3 VALE5 close -3
PETR4 open -1 VALE5 open -1
PETR4 highest -1 VALE5 highest -1
PETR4 lowest -1 VALE5 lowest -1
Dollar close -1 Dollar close -1
DAX close -1 IBOV close -1
Fig. 1. Combination architecture used in this work. IBOV close -1
CLF close -1
TABLE I
SP500 close -1
D ISTRIBUTION OF STOCK QUOTES PER PATTERN IN THE DATABASES
NSY:PBR close -1
WITHOUT EXOGENOUS .

PETR4 database VALE5 database

Stock Lag Stock Lag
PETR4 close -1 VALE5 close -1
PETR4 close -2 VALE5 close -2
PETR4 close -3 VALE5 close -3
A. Databases
Two databases were used for the evaluation of the pro-
posed methods: PETR4 stock quotes dataset and VALE5
stock quotes dataset. Besides, all exogenous time series
described in Section III were used to complement the main
series.
The experiments were performed using two groups of
datasets: dataset without exogenous and dataset with ex-
ogenous time series. Both PETR4 and VALE5 had the two
dataset groups. Table I shows the stock quote distribution for
each database without the exogenous time series and Table II
shows the distribution with exogenous time series. The ”lag”
notation is equivalent to the time t of the series, i.e., lag
−1 corresponds to the stock quote on previous day; lag −2
corresponds to the stock quote on two days past; and lag 0
corresponds to the stock quote from the current day.
B. Experimental Setup
Before the experiments, the databases were organized in
three datasets: training, validation and test sets. The training
set was used for the learning of the neural networks. The val-
idation set was used for tuning of some training parameters.
The training was performed varying other parameters such
as: the number of hidden neurons for MLP and the spread
of the RBF, resulting in a large number of experiments and
neural networks trained. From 1, 500 days of stock quotation
in the database, 1, 200 were used for training and validation
and the last 300 days for testing. For each experiment, the
training and validation sets were divided randomly, with 900
for training and 300 for validation. However, the test dataset
remained the same. The experiments were done as follows.
First, two experiments using the main time series, PETR4
without exogenous, were done. One was using MLP and
another using RBF. The training of the MLP was made with
a variation of hidden neurons in [20 . . . 60], ten times for
each number, generating 410 trained MLPs. The training of
RBF was made with a variation in [10 . . . 100], generating
910 trained RBFs. We have used the validation dataset to
choose the best network configuration, and then use it in a
test set.
Afterwards, two more experiments were done, but now
including the exogenous time series. Again, 410 trained
MLPs and 910 trained RBFs were obtained.
In the end, following Equation 13, where X is the total
number of trained networks, the N bet networks (trained
with exogenous) were chosen for combination (according to
validation dataset).
N = round(log2 (X)) (13)
We have seven metrics to choose the bests networks for
combining. There are a lot of combination possibilities, and
we have used two approaches: (i) the combination of the
N best networks based on P DA metric and (ii) a genetic
algorithm (GA) for this task, where the variable to be
maximized was P DA.
Genetic Algorithm is a evolutionary technique which aims
to get optimization by evolution, through some operators,
such mutation and crossover. In this method, each possible
solution to the problem, that must be optimized, is repre-
sented by a chromosome.
In general, these results show that the RBF has a better
performance than MLP according to the proposed metric.
In the experiments with combination in PETR4 database,
the genetic algorithm found the following metrics combina-
tion: POCID + THEIL + ARV + PDA for MLP and MSE
+ MAPE + THEIL + ARV + PDA for RBF. For VALE5
database, the GA found these metrics combination: POCID
 TABLE IV
+ PDA for MLP and MSE + MAPE + THEIL + ARV + PDA
B EST RESULTS WITH COMBINATION BY THE BEST NETWORKS RANKED
for RBF. Table III shows the combination results generated
BY PDA METRIC (X(σ)).
by GA.
In both databases, the combination of MLP was better than PETR4 database
RBF, according to PDA metric. In fact, for both databases, Metric MLP RBF
the MLP combination presented the best combination of MSE 0.6056 (0.01061) 0.61335(0.010417)
accuracy and trend prediction than RBF combination. MAPE 0.015732 (0.00015777) 0.016285(0.000224)
The results of the combination of best PDA networks can POCID 81.5436 (0.47457) 79.4295(0.65319)
be seen in Table IV. As in GA combination, this results SLG 0.72031 (0.021801) 0.69428(0.017808)
shows that MLP is the best choice. For both databases, THEIL 0.26983 (0.0035511) 0.29633(0.0038447)
the MLP combination presented the biggest PDA value, ARV 0.0020787 (3.5254e-005) 0.002107(3.6346e − 005)
indicating that this combination had better accuracy and PDA 0.27865 (0.004667) 0.2365(0.011121)
trend prediction than RBF combination. Even when RBF VALE5 database
outperforms MLP in some metric, the performance of both Metric MLP RBF
are very close considering this metric. MSE 0.72078(0.024093) 0.59518 (0.013024)
MAPE 0.015687(0.00027368) 0.015478 (0.00025494)
TABLE III
POCID 82.6756 (0.41113) 80.9365(0.49857)
B EST RESULTS WITH COMBINATION BY GENETIC ALGORITHM (X(σ)).
SLG 0.83816 (0.010863) 0.80828(0.010803)
PETR4 database THEIL 0.33828(0.011696) 0.26519 (0.0069003)
Metric MLP RBF ARV 0.0017837(6.0259e − 005) 0.0014727 (3.2269e-005)
MSE 0.61812 (0.0063709) 0.62212(0.014382) PDA 0.26401 (0.0080416) 0.22843(0.0074966)
MAPE 0.015824 (7.8961e-005) 0.016028(0.00015723)
POCID 81.4094(0.17329) 81.5436 (0.27399)
SLG 0.70212(0.010981) 0.70862 (0.003683)
be more suitable because genetic algorithm have a high
THEIL 0.27291 (0.0033154) 0.28875(0.0052983)
computational cost.
ARV 0.0021179 (2.153e-005) 0.0021358(4.9668e − 005)
PDA 0.28546 (0.0054852) 0.26451(0.0044274)
Also, the proposed metric is a natural evolution of SLG
that aims to improve the rank of network based on accuracy
VALE5 database
as well, instead of trend exclusively. The results obtained
Metric MLP RBF
showed some relation between this metric and other accu-
MSE 0.71341(0.021186) 0.6008 (0.017369) racy/trend metrics. In other words, when PDA increases, the
MAPE 0.015662(0.00017252) 0.015511 (0.00027798) accuracy/trend has also an improvement.
POCID 83.1104 (0.47951) 81.0033(0.56406)
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