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PubMed1997

A first application of independent component analysis to extracting structure from stock returns.

This paper explores the application of a signal processing technique known as independent component analysis (ICA) or blind source separation to multivariate financial time series such as a portfolio of stocks. The key idea of ICA is to linearly map the observed multivariate time series into a new space of statistically independent components (ICs). We apply ICA to three years of daily returns of the 28 largest Japanese stocks and compare the results with those obtained using principal component analysis. The results indicate that the estimated ICs fall into two categories, (i) infrequent large shocks (responsible for the major changes in the stock prices), and (ii) frequent smaller fluctuations (contributing little to the overall level of the stocks). We show that the overall stock price can be reconstructed surprisingly well by using a small number of thresholded weighted ICs. In contrast, when using shocks derived from principal components instead of independent components, the reconstructed price is less similar to the original one. ICA is shown to be a potentially powerful method of analyzing and understanding driving mechanisms in financial time series. The application to portfolio optimization is described in Chin and Weigend (1998).

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A spiking neural network architecture for nonlinear function approximation.

Multilayer perceptrons have received much attention in recent years due to their universal approximation capabilities. Normally, such models use real valued continuous signals, although they are loosely based on biological neuronal networks that encode signals using spike trains. Spiking neural networks are of interest both from a biological point of view and in terms of a method of robust signaling in particularly noisy or difficult environments. It is important to consider networks based on spike trains. A basic question that needs to be considered however, is what type of architecture can be used to provide universal function approximation capabilities in spiking networks? In this paper, we propose a spiking neural network architecture using both integrate-and-fire units as well as delays, that is capable of approximating a real valued function mapping to within a specified degree of accuracy.

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