Identification of nonlinear determinants of stock indices derived by Random Forest algorithm

Tratkowski Grzegorz ()
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Tratkowski Grzegorz: Wrocław University of Economics, Wrocław, Poland.

International Journal of Management and Economics, 2020, vol. 56, issue 3, 209-217

Abstract: In this paper, the use of the machine learning algorithm is examined in derivation of the determinants of price movements of stock indices. The Random Forest algorithm was selected as an ideal representative of the nonlinear algorithms based on decision trees. Various brokering and investment firms and individual investors need comprehensive and insight information such as the drivers of stock price movements and relationships existing between the various factors of the stock market so that they can invest efficiently through better understanding. Our work focuses on determining the factors that drive the future price movements of Stoxx Europe 600, DAX, and WIG20 by using the importance of input variables in the Random Forest classifier. The main determinants were derived from a large dataset containing macroeconomic and market data, which were collected everyday through various ways.

Keywords: determinants; Random Forest; stock index; machine learning (search for similar items in EconPapers)
JEL-codes: C45 C5 G11 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:ijomae:v:56:y:2020:i:3:p:209-217:n:3

DOI: 10.2478/ijme-2020-0017

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