Dynamic stacking ensemble learning with investor knowledge representations for stock market index prediction based on multi-source financial data

TL;DR

This paper introduces a two-stage dynamic stacking ensemble model that leverages investor knowledge representations to improve stock index prediction accuracy using multi-source financial data, demonstrating superior performance in Chinese stock markets.

Contribution

The paper presents a novel two-stage dynamic stacking ensemble approach that adaptively selects classifiers based on investor knowledge representations for enhanced stock index prediction.

Findings

Outperforms competing models in prediction accuracy by up to 7.94%.

Improves trading strategy performance with higher returns and Sharpe ratios.

Effectively captures diverse financial data patterns across different indices.

Abstract

The patterns of different financial data sources vary substantially, and accordingly, investors exhibit heterogeneous cognition behavior in information processing. To capture different patterns, we propose a novel approach called the two-stage dynamic stacking ensemble model based on investor knowledge representations, which aims to effectively extract and integrate the features from multi-source financial data. In the first stage, we identify different financial data property from global stock market indices, industrial indices, and financial news based on the perspective of investors. And then, we design appropriate neural network architectures tailored to these properties to generate effective feature representations. Based on learned feature representations, we design multiple meta-classifiers and dynamically select the optimal one for each time window, enabling the model to effectively capture and learn the distinct patterns that emerge across different temporal periods. To evaluate the performance of the proposed model, we apply it to predicting the daily movement of Shanghai Securities Composite index, SZSE Component index and Growth Enterprise index in Chinese stock market. The experimental results demonstrate the effectiveness of our model in improving the prediction performance. In terms of accuracy metric, our approach outperforms the best competing models by 1.42%, 7.94%, and 7.73% on the SSEC, SZEC, and GEI indices, respectively. In addition, we design a trading strategy based on the proposed model. The economic results show that compared to the competing trading strategies, our strategy delivers a superior performance in terms of the accumulated return and Sharpe ratio.