Predicting financial activity with evolutionary fuzzy case-based reasoning

Sheng-Tun Li, Hei Fong Ho

Research output: Contribution to journalArticle

62 Citations (Scopus)

Abstract

Predicting financial activity through examining the short-term liquidity is crucial within today's turbulent financial environment. Firms, governments, and individuals all need an effective methodology based on liquidity information that plays performance deterioration warning a priori bankruptcy prediction. In this paper, we propose a hybrid decision model using case-based reasoning augmented with genetic algorithms (GAs) and the fuzzy k nearest neighbor (fuzzy k-NN) methods for predicting the financial activity rate. GAs are used to determine the optimal or near-optimal weight vector of financial features expressed in linguistic values by the expert. A fuzzy k-NN-based CBR scheme is designed to compute memberships of financial activity rates and to provide a more flexible and practical mechanism for acquiring, creating, and reusing the expert's decision knowledge. An empirical experimentation using 746 publicly traded Taiwanese firms shows that the average accuracy of the rating is about 92.36%, which is superior to other related models. The proposed approach not only can lend support to the decision of an expert, but also allow proper feedback for the expert to improve the quality of the decision.

Original languageEnglish
Pages (from-to)411-422
Number of pages12
JournalExpert Systems With Applications
Volume36
Issue number1
DOIs
Publication statusPublished - 2009 Jan 1

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Case based reasoning
Genetic algorithms
Linguistics
Deterioration
Feedback

All Science Journal Classification (ASJC) codes

  • Engineering(all)
  • Computer Science Applications
  • Artificial Intelligence

Cite this

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Predicting financial activity with evolutionary fuzzy case-based reasoning. / Li, Sheng-Tun; Ho, Hei Fong.

In: Expert Systems With Applications, Vol. 36, No. 1, 01.01.2009, p. 411-422.

Research output: Contribution to journalArticle

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