Back to Basics: The Power of the Multilayer Perceptron in Financial Time Series Forecasting

Abstract

The economic time series prediction literature has seen an increase in research leveraging artificial neural networks (ANNs), particularly the multilayer perceptron (MLP) and, more recently, transformer networks. These ANN models have shown superior accuracy compared to traditional techniques such as autoregressive integrated moving average (ARIMA) models. The most recent models in the prediction of this type of neural network, such as recurrent or Transformers models, are composed of complex architectures that require sufficient processing capacity to address the problems, while MLP is based on densely connected layers and supervised learning. A deep understanding of the limitations is necessary to appropriately choose the ideal model for each of the prediction tasks. In this article, we show how a simple architecture such as the MLP allows a better adjustment than other models, including a shorter prediction time. This research is based on the premise that the use of the most recent models will not always allow better results.