Using Company Specific Headlines and Convolutional Neural Networks to Predict Stock Fluctuations

TL;DR

This paper develops a CNN-based model that uses company-specific news headlines to predict stock fluctuations, achieving over 60% accuracy and significantly increasing trading profits in simulations.

Contribution

It introduces a novel CNN architecture with fewer filters and multiple filter widths, tailored for stock prediction from news headlines, and proposes risk reduction methods for trading strategies.

Findings

Achieved 61.7% classification accuracy with CNN.

Tripled initial investments over 838 days in trading simulations.

Risk reduction methods more than doubled average trade profit.

Abstract

This work presents a Convolutional Neural Network (CNN) for the prediction of next-day stock fluctuations using company-specific news headlines. Experiments to evaluate model performance using various configurations of word-embeddings and convolutional filter widths are reported. The total number of convolutional filters used is far fewer than is common, reducing the dimensionality of the task without loss of accuracy. Furthermore, multiple hidden layers with decreasing dimensionality are employed. A classification accuracy of 61.7\% is achieved using pre-learned embeddings, that are fine-tuned during training to represent the specific context of this task. Multiple filter widths are also implemented to detect different length phrases that are key for classification. Trading simulations are conducted using the presented classification results. Initial investments are more than tripled over a 838 day testing period using the optimal classification configuration and a simple trading strategy. Two novel methods are presented to reduce the risk of the trading simulations. Adjustment of the sigmoid class threshold and re-labelling headlines using multiple classes form the basis of these methods. A combination of these approaches is found to more than double the Average Trade Profit (ATP) achieved during baseline simulations.