A Comparison between Fama and French five-factor model and artificial neural networks in predicting the stock price

Subject Areas : Financial engineering

reza tehrani ¹ , Milad Heyrani ² , Samira Mansuri ³

1 - Professor of Financial Management, faculty of Management, Tehran University, Tehran, Iran
2 - Master of Financial Management, faculty of economics and management, Urmia University, Urmia, Iran
3 - Master of Financial Management, faculty of Management, Tehran University, Tehran, Iran

Received: 2018-06-26 Accepted : 2018-12-22 Published : 2019-06-22

Keywords: forecasting, Artificial Neural Networks, asset pricing, Fama and French 5 Factors CAPM,

Abstract :

One of the most important issues of financial markets is the prediction of price and stock returns. In this paper, we try to find the best model and stock price prediction approach based on the mean square error (MSE), root-mean-square error (RMSE), R-squared, standard deviation (SD), Mean absolute error and the mean absolute percent error (MAPE) for the Fama and French five-factor model. For this purpose, after the formation of a portfolio based on the Fama and French model during the period from 2009 to 2017, stock price is estimated by econometric model, neural network and Fuzzy Neural Networks, so the accuracy of each approach was compared. The results of the prediction the efficiency of the generated portfolios show that the prediction accuracy of the radial base function network (RBF) is very high compared to other ARMA models and other neural networks.