A New Trend Pattern-Matching Method of Interactive Case-Based Reasoning for Stock Price Predictions

Se-Hak Chun and Jae-Won Jang
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Se-Hak Chun: Department of Business Administration, Seoul National University of Science and Technology, 232 Gongneung-ro, Nowon-gu, Seoul 139-743, Korea
Jae-Won Jang: Department of Mechanical System Design Engineering, Seoul National University of Science and Technology, 232 Gongneung-ro, Nowon-gu, Seoul 139-743, Korea

Sustainability, 2022, vol. 14, issue 3, 1-15

Abstract: In this paper, we suggest a new case-based reasoning method for stock price predictions using the knowledge of traders to select similar past patterns among nearest neighbors obtained from a traditional case-based reasoning machine. Thus, this method overcomes the limitation of conventional case-based reasoning, which does not consider how to retrieve similar neighbors from previous patterns in terms of a graphical pattern. In this paper, we show how the proposed method can be used when traders find similar time series patterns among nearest cases. For this, we suggest an interactive prediction system where traders can select similar patterns with individual knowledge among automatically recommended neighbors by case-based reasoning. In this paper, we demonstrate how traders can use their knowledge to select similar patterns using a graphical interface, serving as an exemplar for the target. These concepts are investigated against the backdrop of a practical application involving the prediction of three individual stock prices, i.e., Zoom, Airbnb, and Twitter, as well as the prediction of the Dow Jones Industrial Average (DJIA). The verification of the prediction results is compared with a random walk model based on the RMSE and Hit ratio. The results show that the proposed technique is more effective than the random walk model but it does not statistically surpass the random walk model.

Keywords: artificial intelligence; case-based reasoning; data mining; financial prediction; knowledge discovery; learning techniques (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2022
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