A Robust Predictive Model for Stock Price Forecasting

Abstract

Prediction of future movement of stock prices has been the subject matter of many research work. On one hand, we have proponents of the Efficient Market Hypothesis who claim that stock prices cannot be predicted accurately. On the other hand, there are propositions that have shown that, if appropriately modelled, stock prices can be predicted fairly accurately. The latter have focused on choice of variables, appropriate functional forms and techniques of forecasting. This work proposes a granular approach to stock price prediction by combining statistical and machine learning methods with some concepts that have been advanced in the literature on technical analysis. The objective of our work is to take 5 minute daily data on stock prices from the National Stock Exchange (NSE) in India and develop a forecasting framework for stock prices. Our contention is that such a granular approach can model the inherent dynamics and can be fine-tuned for immediate forecasting. Six different techniques including three regression-based approaches and three classification-based approaches are applied to model and predict stock price movement of two stocks listed in NSE - Tata Steel and Hero Moto. Extensive results have been provided on the performance of these forecasting techniques for both the stocks.

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