PREDICTION INDONESIA COMPOSITE INDEX USING INTEGRATION DECOMPOSITION- NEURAL NETWORK ENSEMBLE DURING VUCA ERA
Abstract
The Volatility, Uncertainty, Complexity, and Ambiguity (VUCA) era causes turmoil in the capital markets, stocks, commodities, etc. The impact is a decline in the Composite Stock Price Index (IHSG) in 2020. Therefore, future data is needed to inform investors and business people when making portfolio decisions. This paper develops a decomposition and Neural Network (NN) integration model to predict ICI during the VUCA era. The results are presented empirically to show the model's effectiveness in reducing prediction errors. First, the actual data is converted into three components; second, with the Neural Network Ensemble (NNE) approach where the initial step of decomposition results is trained using artificial NN with architecture, training data, and topology to produce individual networks; The output is selected using Principal Component Analysis (PCA) and becomes input to the ensemble model, then combined using a simple average and weighted average. The empirical results from ICI predictions illustrate: (1) decomposition has the potential to overcome data that is characterized by high volatility; (2) NNE is able to reduce errors (MSE≤0.100e-4, MAE≤0.01) compared to individual networks (MSE=0.0024 MAE=0.0376); (3) ensemble combinations using weighted averages (MSE≤3.00e-5,MAE≤0.002) are superior to simple averages (MSE≤5.00e-5,MAE≤0.01); (4) the integration carried out shows effectiveness in predicting ICI and provides better prediction results.
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