IDEAS home Printed from https://ideas.repec.org/a/gam/jforec/v8y2026i3p50-d1966249.html

Regime-Aware Stock Index Forecasting Under Latent Market States: A Hybrid Statistical Learning Framework with Cross-Market Validation

Author

Listed:
  • Chunxia Tian

    (Faculty of Economics, Chiang Mai University, Chiang Mai 50200, Thailand)

  • Roengchai Tansuchat

    (The Center of Excellence in Econometrics, Faculty of Economics, Chiang Mai University, Chiang Mai 50200, Thailand)

  • Songsak Sriboonchitta

    (The Center of Excellence in Econometrics, Faculty of Economics, Chiang Mai University, Chiang Mai 50200, Thailand)

Abstract

This study proposes a hybrid forecasting framework that integrates Kalman Filtering (KF), Markov Switching (MS), and nonlinear recurrent learning for stock-index prediction. The KF component smooths short-term price noise, the MS model identifies latent return–volatility regimes, and the LSTM/GRU components learn nonlinear temporal patterns from regime-conditioned information. The framework is evaluated using the CSI 300, S&P 500, and Nikkei 225 indices through forecasting-accuracy measures, Bootstrap Diebold–Mariano tests with Modified Bayes Factor evidence, out-of-sample trading simulations, and robustness checks. The empirical results show that regime conditioning is the primary source of forecasting and economic improvement. KF–MS–LSTM performs best for the CSI 300 and Standard MS performs strongest for the S&P 500, while KF–MS–LSTM and KF–MS–GRU are more competitive for the Nikkei 225. In contrast, models without regime information, including pure LSTM/GRU and the standalone Transformer, generally exhibit weaker forecasting and trading performance. The findings suggest that latent market-state information is more important than neural-network complexity alone for robust financial forecasting, while the incremental value of Kalman filtering and recurrent learning remains market dependent. Overall, the results support regime-aware forecasting as an interpretable and economically meaningful approach for stock-index prediction under heterogeneous market environments.

Suggested Citation

  • Chunxia Tian & Roengchai Tansuchat & Songsak Sriboonchitta, 2026. "Regime-Aware Stock Index Forecasting Under Latent Market States: A Hybrid Statistical Learning Framework with Cross-Market Validation," Forecasting, MDPI, vol. 8(3), pages 1-49, June.
  • Handle: RePEc:gam:jforec:v:8:y:2026:i:3:p:50-:d:1966249
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2571-9394/8/3/50/pdf
    Download Restriction: no

    File URL: https://www.mdpi.com/2571-9394/8/3/50/
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jforec:v:8:y:2026:i:3:p:50-:d:1966249. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.