An integrated framework of genetic network programming and multi-layer perceptron neural network for prediction of daily stock return: An application in Tehran stock exchange market

Evolutionary algorithms are generally used to find or generate the best individuals in a population. Whenever these algorithms are applied to agent systems, they will lead to optimal solutions. Genetic Network Programming (GNP), which contains graph networks, is one of the developed evolutionary algorithms. When the aim is to forecast the share price or return, ascending and descending trends, volatilities, recent returns, fundamental and technical factors have remarkable impacts on the prediction. This is why technical indicators are used to constitute a set of trading rules. In this paper, we apply an integrated framework consisting of GNP model along with a reinforcement learning and Multi-Layer Perceptron (MLP) neural network to classify data and also time series models to forecast the stock return. Moreover, we utilize rules of accumulation based on the GNP model’s results to forecast the return. The aim of using these models alongside one another is to estimate one-day return. The results derived from 9 stocks with regard to the Tehran Stock Exchange Market. GNP extracts a prodigious number of rules on the basis of 5 technical indicators with 3 times period. Next, MLP network classifies data and finds the similarity between future data and past data concerning a stock (5 sub-period) through classification. Subsequently, a number of conditions are established, in order to choose the best estimation between GNP-RL and ARMA. Distinct comparison with the ARMA–GARCH model, which is operated for return estimation and risk measurement in many researches, demonstrates an extended forecasting power of the proposed model, by the name of GNP–ARMA, reducing error by a mean of 16%.