Causality-driven multivariate stock movement forecasting

Abel Díaz Berenguer, Yifei Da, Matías Nicolás Bossa, Meshia Cédric Oveneke and Hichem Sahli

PLOS ONE, 2024, vol. 19, issue 4, 1-41

Abstract: Our study aims to investigate the interdependence between international stock markets and sentiments from financial news in stock forecasting. We adopt the Temporal Fusion Transformers (TFT) to incorporate intra and inter-market correlations and the interaction between the information flow, i.e. causality, of financial news sentiment and the dynamics of the stock market. The current study distinguishes itself from existing research by adopting Dynamic Transfer Entropy (DTE) to establish an accurate information flow propagation between stock and sentiments. DTE has the advantage of providing time series that mine information flow propagation paths between certain parts of the time series, highlighting marginal events such as spikes or sudden jumps, which are crucial in financial time series. The proposed methodological approach involves the following elements: a FinBERT-based textual analysis of financial news articles to extract sentiment time series, the use of the Transfer Entropy and corresponding heat maps to analyze the net information flows, the calculation of the DTE time series, which are considered as co-occurring covariates of stock Price, and TFT-based stock forecasting. The Dow Jones Industrial Average index of 13 countries, along with daily financial news data obtained through the New York Times API, are used to demonstrate the validity and superiority of the proposed DTE-based causality method along with TFT for accurate stock Price and Return forecasting compared to state-of-the-art time series forecasting methods.

Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:plo:pone00:0302197

DOI: 10.1371/journal.pone.0302197

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