Predicting stock movement direction with machine learning: An extensive study on SP 500 stocks

摘要

Stocks movement direction forecasting has received a lot of attention. Indeed, being able to make accurate forecasts has strong implications on trading strategies. Surprisingly enough little has been published, relatively to the importance of the topic. In this paper, we reviewed how well four classic classification algorithms: random forest, gradient boosted trees, artificial neural network and logistic regression perform in predicting 463 stocks of the S&P 500. Several experiments were conduced to thoroughly study the predictability of these stocks. To validate each prediction algorithm, three schemes we compared: standard cross validation, sequential validation and single validation. As expected, we were not able to predict stocks future prices from their past. However, unexpectedly, we were able to show that taking into account recent information - such as recently closed European and Asian indexes - to predict S&P 500 can lead to a vast increase in predictability. Moreover, we also found out that, among various sectors, financial sector stocks are comparatively more easy to predict than others.