Forecasting of electricity prices in the Spanish electricity market using machine learning tools

The objective of this research assignment was to forecast electricity prices in the Spanish electricity market using three different machine learning techniques: k-nearest neighbours, support vector regression and artificial neural networks. The achieved results were compared and the quality of developed models was evaluated. The project was implemented in Python3.Incomin

Essays on Financial Applications of Nonlinear Models

In this thesis, we examine the relationship between news and the stock market. Further, we explore methods and build new nonlinear models for forecasting stock price movement and portfolio optimization based on past stock prices and on one type of big data, news items, which are obtained through the RavenPack News Analytics Global Equities editions. The thesis consists of three essays. In Essay 1, we investigate the relationship between news items and stock prices using the artificial neural network (ANN) model. First, we use Granger causality to ascertain how news items affect stock prices. The results show that news volume is not the Granger cause of stock price change; rather, news sentiment is. Second, we test the semi–strong form efficient market hypothesis, whereas most existing research testing efficient market hypothesis focuses on the weak–form version. Our ANN strategies consistently outperform the passive buy–and–hold strategy and this finding is apparently at odds with the notion of the efficient market hypothesis. Finally, using news sentiment analytics from RavenPack Dow Jones News Analytics, we show positive profitability with out–of–sample prediction using the proposed ANN strategies for Google Inc. (NASDAQ: GOOG). In Essay 2, we expand the utility of the information from news volume and news sentiments to encompass portfolio diversification. For the Dow Jones Industrial Average (DJIA) components, we assign different weights to build portfolios according to their weekly news volumes or news sentiments. Our results show that news volume contributes to portfolio variance both in–sample and out–of–sample: positive news sentiment contributes to the portfolio return in–sample, while negative contributes to the portfolio return out–of–sample, which is a consequence of investors overreacting to the news sentiment. Further, we propose a novel approach to portfolio diversification using the k–Nearest Neighbors (kNN) algorithm based on the idea that news sentiment correlates with stock returns. Out–of–sample results indicate that such strategy dominates the benchmark DJIA index portfolio. In Essay 3, we propose a new model called the Combined Markov and Hidden Markov Model (CMHMM), in which observation is affected by a Markov model and an HMM (Hidden Markov Model) model. The three fundamental questions of the CMHMM are discussed. Further, the application of the CMHMM, in which the news sentiment is one observation and the stock return is the other, is discussed. The empirical results of the trading strategy based on the CMHMM show the potential applications of the proposed model in finance. This thesis contributes to the literature in a number of ways. First, it extends the literature on financial applications of nonlinear models. We explore the applications of the ANNs and kNN in the financial market. Besides, the proposed new CMHMM model adheres to the nature of the stock market and has better potential prediction ability. Second, the empirical results from this dissertation contribute to the understanding of the relationship between news and the stock market. For instance, our research found that news volume contributes to the portfolio return and that investors overreact to news sentiment—a phenomenon that has been discussed by other scholars from different angles

Machine learning techniques for predicting the stock market using daily market variables

Dissertation presented as the partial requirement for obtaining a Master's degree in Information Management, specialization in Knowledge Management and Business IntelligencePredicting the stock market was never seen as an easy task. The complexity of the financial systems makes it extremely difficult for anything or anyone to predict what the future of prices holds, let it be a day, a week, a month or even a year. Many variables influence the market’s volatility and some of these may even be the gut feeling of an investor on a specific day. Several machine learning techniques were already applied to forecast multiple stock market indexes, some presenting good values of accuracy when it comes to predict whether the prices will go up or down, and low values of error when dealing with regression data. This work aims to apply some state-of-the-art algorithms and compare their performance with Long Short-term Memory (LSTM) as well as between each other. The variables used to this empirical work were the prices of the Dow Jones Industrial Average (DJIA) registered for every business day, from January 1st of 2006 to January 1st of 2018, for 29 companies. Some changes and adjustments were made to the original variables to present different data types to the algorithms. To ensure good quality and certainty when evaluating the flexibility and stability of each model, the error measure used was the Root Mean Squared Error and the Mann-Whitney U test was also applied to assess statistical significance of the results obtained.Prever a bolsa nunca foi considerado ser uma tarefa fácil. A complexidade dos sistemas financeiros torna extremamente difícil que um ser humano ou uma máquina consigam prever o que o futuro dos preços reserva, seja para um dia, uma semana, um mês ou um ano. Muitas variáveis influenciam a volatilidade do mercado e algumas podem até ser a confiança de um investidor em apostar em determinada empresa, naquele dia específico. Várias técnicas de aprendizagem automática foram aplicadas ao longo do tempo para prever vários índices de bolsas, algumas apresentando bons valores de precisão quando se tratou de prever se os preços subiam ou desciam e outras, baixos valores de erro ao lidar com dados de regressão. Este trabalho tem como objetivo aplicar alguns dos mais conhecidos algoritmos e comparar os seus desempenhos com o Long Short-Term Memory (LSTM), e entre si. As variáveis utilizadas para a elaboração deste trabalho empírico foram os preços da Dow Jones Industrial Average (DJIA) registados para todos os dias úteis, de 1 de Janeiro de 2006 a 1 de Janeiro de 2018, para 29 empresas. Algumas alterações e ajustes foram efetuados sobre as variáveis originais de forma a construír diferentes tipos de dados para posteriormente dar aos algoritmos. Para garantir boa qualidade e veracidade ao avaliar a flexibilidade e estabilidade de cada modelo, a medida de erro utilizada foi o erro médio quadrático da raíz e, de seguida, o teste U de Mann-Whitney foi aplicado para avaliar a significância estatística dos resultados obtidos

Using machine learning to forecast long-term equity price movement : an empirical study of the Finnish financial markets

Predicting equity price movement is one of the fundamental challenges in finance, and even small improvements in prediction performance can be highly profitable for investors. Long-term investment is one of the popular investment strategies that investors follow. However, evaluating which companies are going to perform well in the future is difficult. This research presents machine learning aided approach to forecast long-term price movement of the stocks listed on the Helsinki Stock Exchange. The purpose of the research is to find out which machine learning model performs the best in the Finnish financial markets and to understand what the key variables are, which have a major effect on the prediction accuracy of the models. The research is also testing whether the macroeconomic variables of Finland increase the accuracy of the machine learning models when forecasting long-term equity price movement. The following machine learning models are used in the research: logistic regression, support vector machine, decision tree, random forest, and k-nearest neighbors. This research produced a number of key findings: the results from the models indicated that the best performance was achieved by the random forest model, which obtained classification accuracy of 65.3% and F1 score of 60.8%; the random forest model is able to give over 60% chance for an investor to pick a stock, which will have a 10% or higher return over the period of one year; the macroeconomic variables increased the prediction performance of every machine learning model used in the research. The main conclusions drawn from this research are that the macroeconomic variables can provide new information, which is not explained by only using financial ratios in the models. Also, the equity prices in the Finnish financial markets are not equally random, meaning that they do not always follow a random walk process. Therefore, this research argues that the Finnish financial market is not highly efficient, thus stock prices are on some level predictable. These findings contribute to the financial theory of market efficiency

Predicting stock return and volatility with machine learning and econometric models: A comparative case study of the Baltic stock market

For stock market predictions, the essence of the problem is usually predicting the magnitude and direction of the stock price movement as accurately as possible. There are different approaches (e.g., econometrics and machine learning) for predicting stock returns. However, it is non-trivial to find an approach which works the best. In this paper, we make a thorough analysis of the predictive accuracy of different machine learning and econometric approaches for predicting the returns and volatilities on the OMX Baltic Benchmark price index, which is a relatively less researched stock market. Our results show that the machine learning methods, namely the support vector regression and k-nearest neighbours, predict the returns better than autoregressive moving average models for most of the metrics, while for the other approaches, the results were not conclusive. Our analysis also highlighted that training and testing sample size plays an important role on the outcome of machine learning approaches

Techniques for Stock Market Prediction: A Review

Stock market forecasting has long been viewed as a vital real-life topic in economics world. There are many challenges in stock market prediction systems such as the Efficient Market Hypothesis (EMH), Nonlinearity, complex, diverse datasets, and parameter optimization. A stock's value on the stock market fluctuates due to many factors like previous trends of the stock, the current news, twitter feeds, any online customer feedbacks etc. In this paper, the literature is critically analysed on approaches used for stock market prediction in terms of stock datasets, features used, evaluation metrics used, statistical, machine learning and deep learning techniques along with the directions for the future. The focus of this review is on trend and value prediction for stocks. Overall, 68 research papers have been considered for review from years 1998-2023. From the review, Indian stock market datasets are found to be most frequently used datasets. Evaluation metrics used commonly are accuracy and Mean Absolute Percentage Error. ARIMA is reported as the most used frequently statistical technique for stick market prediction. Long-Short Term Memory and Support Vector Machine are the commonly used algorithms in stock market prediction. The advantages and disadvantages of frequently used evaluation metrics, machine learning, deep learning and statistical approaches are also included in this survey

Forecasting movements of health-care stock prices based on different categories of news articles using multiple kernel learning

—The market state changes when a new piece of information arrives. It affects decisions made by investors and is considered to be an important data source that can be used for financial forecasting. Recently information derived from news articles has become a part of financial predictive systems. The usage of news articles and their forecasting potential have been extensively researched. However, so far no attempts have been made to utilise different categories of news articles simultaneously. This paper studies how the concurrent, and appropriately weighted, usage of news articles, having different degrees of relevance to the target stock, can improve the performance of financial forecasting and support the decision-making process of investors and traders. Stock price movements are predicted using the multiple kernel learning technique which integrates information extracted from multiple news categories while separate kernels are utilised to analyse each category. News articles are partitioned according to their relevance to the target stock, its sub industry, industry, group industry and sector. The experiments are run on stocks from the Health Care sector and show that increasing the number of relevant news categories used as data sources for financial forecasting improves the performance of the predictive system in comparison with approaches based on a lower number of categories