Dynamical analysis of financial stocks network: Improving forecasting using network properties

Ixandra Achitouv ()
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Ixandra Achitouv: ISC-PIF - Institut des Systèmes Complexes - Paris Ile-de-France - ENS Cachan - École normale supérieure - Cachan - UP1 - Université Paris 1 Panthéon-Sorbonne - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - Institut Curie [Paris] - SU - Sorbonne Université - CNRS - Centre National de la Recherche Scientifique

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Abstract: Applying a network analysis to stock return correlations, we study the dynamical properties of the network and how they correlate with the market return, finding meaningful variables that partially capture the complex dynamical processes of stock interactions and the market structure. We then use the individual properties of stocks within the network along with the global ones, to find correlations with the future returns of individual S&P 500 stocks. Applying these properties as input variables for forecasting, we find a 21 % improvement on the R2score in the prediction of stock returns on long time scales (per year), and 3 % on short time scales (2 days), relative to baseline models without network variables. These findings highlight the potential of integrating network-based variables into stock return prediction models, which could enhance forecasting accuracy and provide a deeper understanding of market dynamics. This approach could be valuable for both investors and researchers seeking to model and predict stock behaviour in complex financial networks.

Date: 2025-05-09
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Published in PLoS ONE, 2025, 20 (5), pp.e0319985. ⟨10.1371/journal.pone.0319985⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05410285

DOI: 10.1371/journal.pone.0319985

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