Explainable Machine Learning Exploiting News and Domain-Specific Lexicon for Stock Market Forecasting

Carta S. M.;Consoli S.

;Piras L.;Podda A. S.;Reforgiato Recupero D. A. G.

2021-01-01

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Abstract

In this manuscript, we propose a Machine Learning approach to tackle a binary classification problem whose goal is to predict the magnitude (high or low) of future stock price variations for individual companies of the SP 500 index. Sets of lexicons are generated from globally published articles with the goal of identifying the most impactful words on the market in a specific time interval and within a certain business sector. A feature engineering process is then performed out of the generated lexicons, and the obtained features are fed to a Decision Tree classifier. The predicted label (high or low) represents the underlying company's stock price variation on the next day, being either higher or lower than a certain threshold. The performance evaluation we have carried out through a walk-forward strategy, and against a set of solid baselines, shows that our approach clearly outperforms the competitors. Moreover, the devised Artificial Intelligence (AI) approach is explainable, in the sense that we analyze the white-box behind the classifier and provide a set of explanations on the obtained results.