Combining Autoregressive Integrated Moving Average Model and Gaussian Process Regression to Improve Stock Price Forecast

Shiying Tu, Jiehu Huang, Huailong Mu, Juan Lu and Ying Li ()
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Shiying Tu: Guangxi Key Laboratory of Ocean Engineering Equipment and Technology, Beibu Gulf University, Qinzhou 535011, China
Jiehu Huang: Guangxi Key Laboratory of Ocean Engineering Equipment and Technology, Beibu Gulf University, Qinzhou 535011, China
Huailong Mu: Guangxi Key Laboratory of Ocean Engineering Equipment and Technology, Beibu Gulf University, Qinzhou 535011, China
Juan Lu: Guangxi Key Laboratory of Ocean Engineering Equipment and Technology, Beibu Gulf University, Qinzhou 535011, China
Ying Li: College of International Studies, Beibu Gulf University, Qinzhou 535011, China

Mathematics, 2024, vol. 12, issue 8, 1-15

Abstract: Stock market performance is one key indicator of the economic condition of a country, and stock price forecasting is important for investments and financial risk management. However, the inherent nonlinearity and complexity in stock price movements imply that simple conventional modeling techniques are not adequate for stock price forecasting. In this paper, we present a hybrid model (ARIMA + GPRC) which combines the autoregressive integrated moving average (ARIMA) model and Gaussian process regression (GPR) with a combined covariance function (GPRC). The proposed hybrid model can account for both the linearity and nonlinearity in stock price movements. Based on daily data on three stocks listed on the Shanghai Stock Exchange (SSE), it is found that GPRC outperforms GPR with a single covariance function. Further, the proposed hybrid model is compared with the ARIMA model, artificial neural network (ANN), and GPRC model. Based on the forecasting trend and the statistical performance of the four models, the ARIMA + GPRC model is found to be the dominant model for stock price forecasting and can significantly improve forecasting performance.

Keywords: stock price forecast; combining model; autoregressive integrated moving average; Gaussian process regression; covariance function (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2024
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