A three-step machine learning approach to predict market bubbles with financial news

Abraham Atsiwo

Papers from arXiv.org

Abstract: This study presents a three-step machine learning framework to predict bubbles in the S&P 500 stock market by combining financial news sentiment with macroeconomic indicators. Building on traditional econometric approaches, the proposed approach predicts bubble formation by integrating textual and quantitative data sources. In the first step, bubble periods in the S&P 500 index are identified using a right-tailed unit root test, a widely recognized real-time bubble detection method. The second step extracts sentiment features from large-scale financial news articles using natural language processing (NLP) techniques, which capture investors' expectations and behavioral patterns. In the final step, ensemble learning methods are applied to predict bubble occurrences based on high sentiment-based and macroeconomic predictors. Model performance is evaluated through k-fold cross-validation and compared against benchmark machine learning algorithms. Empirical results indicate that the proposed three-step ensemble approach significantly improves predictive accuracy and robustness, providing valuable early warning insights for investors, regulators, and policymakers in mitigating systemic financial risks.

Date: 2025-10
New Economics Papers: this item is included in nep-big, nep-cmp, nep-fdg, nep-fmk and nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2510.16636 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2510.16636

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().