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Design and Evaluation of Empirical Models for Stock Price Prediction

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  • JUNQUÉ DE FORTUNY, Enric
  • DE SMEDT, Tom
  • MARTENS, David
  • DAELEMANS, Walter

Abstract

The efficient market hypothesis and related theories claim that it is impossible to predict future stock prices. Even so, empirical research has countered this claim by achieving better than random prediction performance. Using a model built from a combination of text mining and time series prediction, we provide further evidence to counter the efficient market hypothesis. We discuss the difficulties in evaluating such models by investigating the drawbacks of the common choices of evaluation metrics used in these empirical studies. We continue by suggesting alternative techniques to validate stock prediction models, circumventing these shortcomings. Finally, a trading system is built for the Euronext Brussels stock exchange market. In our framework, we applied a novel sentiment mining technique in the design of the model and show the usefulness of state-of-the-art explanation-based techniques to validate the resulting models.

Suggested Citation

  • JUNQUÉ DE FORTUNY, Enric & DE SMEDT, Tom & MARTENS, David & DAELEMANS, Walter, 2012. "Design and Evaluation of Empirical Models for Stock Price Prediction," Working Papers 2012017, University of Antwerp, Faculty of Business and Economics.
  • Handle: RePEc:ant:wpaper:2012017
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    File URL: https://repository.uantwerpen.be/docman/irua/6bc29e/98239f93.pdf
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    References listed on IDEAS

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    1. JUNQUÉ DE FORTUNY, Enric & DE SMEDT, Tom & MARTENS, David & DAELEMANS, Walter, 2012. "Media coverage in times of political crisis: a text mining approach," Working Papers 2012003, University of Antwerp, Faculty of Business and Economics.
    2. Bernard J. Jansen & Mimi Zhang & Kate Sobel & Abdur Chowdury, 2009. "Twitter power: Tweets as electronic word of mouth," Journal of the American Society for Information Science and Technology, Association for Information Science & Technology, vol. 60(11), pages 2169-2188, November.
    3. Burton G. Malkiel, 2005. "Reflections on the Efficient Market Hypothesis: 30 Years Later," The Financial Review, Eastern Finance Association, vol. 40(1), pages 1-9, February.
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    Keywords

    Stock prediction; Support Vector Machine; Text mining; Opinion mining;
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