Predicting the trend of stock index based on feature engineering and CatBoost model

Renzhe Xu, Yudong Chen (), Tenglong Xiao, Jingli Wang () and Xiong Wang ()
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Renzhe Xu: Institute for Advanced Study, Shenzhen University, Shenzhen, Guangdong, P. R. China
Yudong Chen: Institute for Advanced Study, Shenzhen University, Shenzhen, Guangdong, P. R. China
Tenglong Xiao: Institute for Advanced Study, Shenzhen University, Shenzhen, Guangdong, P. R. China
Jingli Wang: Institute for Advanced Study, Shenzhen University, Shenzhen, Guangdong, P. R. China
Xiong Wang: Institute for Advanced Study, Shenzhen University, Shenzhen, Guangdong, P. R. China

International Journal of Financial Engineering (IJFE), 2021, vol. 08, issue 02, 1-17

Abstract: As an important tool to measure the current situation of the whole stock market, the stock index has always been the focus of researchers, especially for its prediction. This paper uses trend types, which are received by clustering price series under multiple time scale, combined with the day-of-the-week effect to construct a categorical feature combination. Based on the historical data of six kinds of Chinese stock indexes, the CatBoost model is used for training and predicting. Experimental results show that the out-of-sample prediction accuracy is 0.55, and the long–short trading strategy can obtain average annualized return of 34.43%, which is a great improvement compared with other classical classification algorithms. Under the rolling back-testing, the model can always obtain stable returns in each period of time from 2012 to 2020. Among them, the SSESC’s long–short strategy has the best performance with an annualized return of 40.85% and a sharp ratio of 1.53. Therefore, the trend information on multiple time-scale features based on feature engineering can be learned by the CatBoost model well, which has a guiding effect on predicting stock index trends.

Keywords: Stock market index; CatBoost model; feature engineering; clustering (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1142/S2424786321500274

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