Deep Hybrid CNN-LSTM-GRU Model for a Financial Risk Early Warning System

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Authors: Muhammad Ali Chohan, T. Li, Shaik Mohammad Abrar, Shamaila Butt
Cited by: 4
References: 27

Abstract

Financial risk early warning systems are essential for proactive risk management in volatile markets, particularly for emerging economies such as China. This study develops a hybrid deep learning model integrating Convolutional Neural Networks (CNNs), Long Short-Term Memory (LSTM), and Gated Recurrent Units (GRUs) to enhance the accuracy and robustness of financial risk prediction. Using firm-level quarterly financial data from Chinese listed companies, the proposed model is benchmarked against standalone CNN, LSTM, and GRU architectures. Experimental results show that the hybrid CNN–LSTM–GRU model achieves superior performance across all evaluation metrics, with prediction accuracy reaching 93.5%, precision reaching 92.2%, recall reaching 91.8%, and F1-score reaching 92.0%, significantly outperforming individual models. Moreover, the hybrid approach demonstrates faster convergence than LSTM and improved class balance compared to CNN and GRU, reducing false negatives for high-risk firms—a critical aspect for early intervention. These findings highlight the hybrid model’s robustness and real-world applicability, offering regulators, investors, and policymakers a reliable tool for timely financial risk detection and informed decision-making. By combining high predictive power with computational efficiency, the proposed system provides a practical framework for strengthening financial stability in emerging and dynamic markets.

Fields of Study & Subjects

Financial Distress and Bankruptcy Prediction Stock Market Forecasting Methods Explainable Artificial Intelligence (XAI)

Publication details

Journal / source
Risks
Publisher
MDPI AG
Volume
14
Issue
1
Pages
14–14
Publication date
5 January 2026
Language
EN