High frequency foreign exchange data can be decomposed into three components: the inventory effect component, the surprise infonnation (news) component and the regular infonnation component. The presence of the inventory effect and news can make analysis of trends due to the diffusion of infonnation (regular information component) difficult. We propose a neural-net-based, independent component analysis to separate high frequency foreign exchange data into these three components. Our empirical results show that our proposed multi-effect decomposition can reveal the intrinsic price behavior.

High frequency foreign exchange data can be decomposed into three components: the inventory effect component, the surprise infonnation (news) component and the regular infonnation component. The presence of the inventory effect and news can make analysis of trends due to the diffusion of infonnation (regular information component) difficult. We propose a neural-net-based, independent component analysis to separate highfrequency foreign exchange data into these three components. Our empirical results show that our proposed multi-effect decomposition can reveal the intrinsic price behavior.

We derive a smoothing regularizer for recurrent network models by requiring robustness in prediction performance to perturbations of the training data. The regularizer can be viewed as a generalization of the first order Tikhonov stabilizer to dynamic models. The closed-form expression of the regularizer covers both time-lagged and simultaneous recurrent nets, with feedforward nets and onelayer linear nets as special cases. We have successfully tested this regularizer in a number of case studies and found that it performs better than standard quadratic weight decay. 1 Introd uction One technique for preventing a neural network from overfitting noisy data is to add a regularizer to the error function being minimized. Regularizers typically smooth the fit to noisy data. Well-established techniques include ridge regression, see (Hoerl & Kennard 1970), and more generally spline smoothing functions or Tikhonov stabilizers that penalize the mth-order squared derivatives of the function being fit, as in (Tikhonov & Arsenin 1977), (Eubank 1988), (Hastie & Tibshirani 1990) and (Wahba 1990). Thes(-ilethods have recently been extended to networks of radial basis functions (Girosi, Jones & Poggio 1995), and several heuristic approaches have been developed for sigmoidal neural networks, for example, quadratic weight decay (Plaut, Nowlan & Hinton 1986), weight elimination (Scalettar & Zee 1988),(Chauvin 1990),(Weigend, Rumelhart & Huberman 1990) and soft weight sharing (Nowlan & Hinton 1992).

We derive a smoothing regularizer for recurrent network models by requiring robustness in prediction performance to perturbations of the training data. The regularizer can be viewed as a generalization ofthe first order Tikhonov stabilizer to dynamic models. The closed-form expression of the regularizer covers both time-lagged and simultaneous recurrent nets, with feedforward nets and onelayer linearnets as special cases. We have successfully tested this regularizer in a number of case studies and found that it performs better than standard quadratic weight decay. 1 Introd uction One technique for preventing a neural network from overfitting noisy data is to add a regularizer to the error function being minimized. Regularizers typically smooth the fit to noisy data. Well-established techniques include ridge regression, see (Hoerl & Kennard 1970), and more generally spline smoothing functions or Tikhonov stabilizers that penalize the mth-order squared derivatives of the function being fit, as in (Tikhonov & Arsenin 1977), (Eubank 1988), (Hastie & Tibshirani 1990) and (Wahba 1990). Thes( -ilethods have recently been extended to networks of radial basis functions (Girosi, Jones & Poggio 1995), and several heuristic approaches have been developed for sigmoidal neural networks, for example, quadratic weight decay (Plaut, Nowlan & Hinton 1986), weight elimination (Scalettar & Zee 1988),(Chauvin 1990),(Weigend,Rumelhart & Huberman 1990) and soft weight sharing (Nowlan & Hinton 1992).