Measuring Financial Time Series Similarity With a View to Identifying Profitable Stock Market Opportunities

Rian Dolphin, Barry Smyth, Yang Xu and Ruihai Dong

Papers from arXiv.org

Abstract: Forecasting stock returns is a challenging problem due to the highly stochastic nature of the market and the vast array of factors and events that can influence trading volume and prices. Nevertheless it has proven to be an attractive target for machine learning research because of the potential for even modest levels of prediction accuracy to deliver significant benefits. In this paper, we describe a case-based reasoning approach to predicting stock market returns using only historical pricing data. We argue that one of the impediments for case-based stock prediction has been the lack of a suitable similarity metric when it comes to identifying similar pricing histories as the basis for a future prediction -- traditional Euclidean and correlation based approaches are not effective for a variety of reasons -- and in this regard, a key contribution of this work is the development of a novel similarity metric for comparing historical pricing data. We demonstrate the benefits of this metric and the case-based approach in a real-world application in comparison to a variety of conventional benchmarks.

Date: 2021-07
New Economics Papers: this item is included in nep-big, nep-cwa, nep-fmk and nep-rmg
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Citations: View citations in EconPapers (3)

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