Causality-driven multivariate stock movement forecasting

Abel Diaz Berenguer, Yifei Da, Matías Nicolás Bossa Bossa, Meshia Cédric Oveneke, Hichem Sahli

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Abstract

Our study aims to investigate the interdependence between international stock markets and sentiments from financial news in stock forecasting. We adopt the Temporal Fusion Transformers (TFT) to incorporate intra and inter-market correlations and the interaction between the information flow, i.e. causality, of financial news sentiment and the dynamics of the stock market. The current study distinguishes itself from existing research by adopting Dynamic Transfer Entropy (DTE) to establish an accurate information flow propagation between stock and sentiments. DTE has the advantage of providing time series that mine information flow propagation paths between certain parts of the time series, highlighting marginal events such as spikes or sudden jumps, which are crucial in financial time series. The proposed methodological approach involves the following elements: a FinBERT-based textual analysis of financial news articles to extract sentiment time series, the use of the Transfer Entropy and corresponding heat maps to analyze the net information flows, the calculation of the DTE time series, which are considered as co-occurring covariates of stock Price, and TFT-based stock forecasting. The Dow Jones Industrial Average index of 13 countries, along with daily financial news data obtained through the New York Times API, are used to demonstrate the validity and superiority of the proposed DTE-based causality method along with TFT for accurate stock Price and Return forecasting compared to state-of-the-art time series forecasting methods.
Original languageEnglish
Article numbere0302197
Pages (from-to)1-41
Number of pages41
JournalPLOS ONE
Volume19
Issue number4
DOIs
Publication statusPublished - 25 Apr 2024

Bibliographical note

Copyright: © 2024 Díaz Berenguer et al. This is an open access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

Keywords

  • Causality-driven
  • Multivariate stock movement forecasting
  • Information flow propagation between stock and sentiments

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