## Forecasting stock market movement with SVM

Huang, W., Nakamori, Y., & Wang, S. (2005). Forecasting stock market movement direction with support vector machine. Computers and Operations Research, 32, 2513–2522. https://doi.org/10.1016/j.cor.2004.03.016

SVMs are used because:

• regularisation on the decision function
• sparsity of the solution (many coefficients are zero)
• unique and globally optimal solution

### Experiment

• Examining weekly changes of the Nikkei 225
• Features: S&P500, USD/JPY exchange rate
• Parameters: $C=50$, Gaussian kernel
• Outputs a direction $\in \{-1, 1\}$, such that:

where $S_{t-1}$ is the log difference between the values at $t-1$ and $t$

• Dataset: weekly data from Jan 1990 to Dec 2002 (676 observations)
• SVM compared with a naive random walk, LDA, QDA, RNN and a combined model

### Results

• SVM had a hit ratio of 73%, RNN 69%, combined model 75%.