S$^{3}$G: Stock State Space Graph for Enhanced Stock Trend Prediction

TL;DR

This paper introduces S$^{3}$G, a dynamic graph-based framework that models evolving stock relationships over time, utilizing wavelet transforms and state space models to improve stock trend prediction accuracy.

Contribution

The paper proposes a novel dynamic graph construction and evolution modeling approach for stock trend prediction, capturing fine-grained, time-varying interdependencies.

Findings

Achieves state-of-the-art prediction performance on CSI 500 data.

Outperforms baseline models in annualized returns and Sharpe ratios.

Effectively captures the dynamic nature of stock relationships.

Abstract

Stock trend prediction has attracted considerable attention for its potential to generate tangible investment returns. With the advent of deep learning in quantitative finance, researchers have increasingly recognized the importance of synergies between stocks, such as sector membership or upstream-downstream relationships, in accurately capturing market dynamics. However, previous work often relies on static industry graphs or constructs graphs at each time step via similarity measures, overlooking the fluid evolution of stock relationships. We observe that as companies interact competitively and cooperatively, their interdependencies change in a fine-grained, time-varying manner that cannot be fully captured by coarse, static connections or simple similarity-based snapshots. To address these challenges, we introduce the Stock State Space Graph (S$^{3}$G) framework for enhanced stock trend prediction. First, we apply wavelet transforms to denoise the inherently low signal-to-noise financial series and extract salient patterns. After that, we construct data-dependent graphs at each time point and employ state space models to characterize the evolutionary dynamics of these graphs. Finally, we perform a graph aggregation operation to obtain the predicted return. Extensive experiments on historical CSI 500 data demonstrate the state-of-the-art performance of S$^{3}$G, with superior annualized returns and Sharpe ratios compared to other baselines.