A Stochastic Regression and Sentiment Analysis-Based Approach for Forecasting Trends in the Stock Market

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Anjali Verma , L. K. Vishwamitra


Stochastic regression problems especially applied to time series forecasting problems often encounter the challenge of volatility and unpredictable seasonality in datasets. One such application happens to forecasting the movement of stock markets globally. Stock data across the world exhibits an intrinsic baseline noise, which often can’t be correlated to previous temporal patterns. Rather, such divergences are an effect of multiple non-numeric variables which govern stock movement such as political scenarios, trade wars, imminent economic waxing and waning trends to name a few. However, it is essential to incorporate these factors while training a model so as to design a strongly sentient and anticipatory regression algorithm which is both pervasive and robust, encompassing as many numeric and non-numeric factors as possible. While conventional machine learning and deep learning approaches tend to leverage tested model architectures, they often miss out on the optimization of both training data and training method to yield potentially high forecasting accuracy. The paper combines stochastic regression in terms of momentum based training and data optimization which is shown to exhibit considerable lower forecasting error compared to existing approaches. To encompass a wider feature space, sentiment analysis has been incorporated to correlate stock movements with public opinions. The proposed approach has been tested on a multitude of benchmark datasets, to validate the performance of the approach. The mean absolute percentage error (MAPE) and regression values have been selected as primary metrics for the performance evaluation.  The proposed approach attains a mean MAPE value of 3.22%. The analysis of the MAPE and forecasting accuracy w.r.t. existing benchmark approaches proves the improved forecasting performance of the proposed approach over a period of 300 days.

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