Machine Learning for Quantitative Finance Applications: A Survey

Benchmarking quantum versions of the kNN algorithm with a metric based on amplitude-encoded features

This work introduces a quantum subroutine for computing the distance between two patterns and integrates it into two quantum versions of the kNN classifier algorithm: one proposed by Schuld et al. and the other proposed by Quezada et al. Notably, our proposed subroutine is tailored to be memory-efficient, requiring fewer qubits for data encoding, while maintaining the overall complexity for both QkNN versions. This research focuses on comparing the performance of the two quantum kNN algorithms using the original Hamming distance with qubit-encoded features and our proposed subroutine, which computes the distance using amplitude-encoded features. Results obtained from analyzing thirteen different datasets (Iris, Seeds, Raisin, Mine, Cryotherapy, Data Bank Authentication, Caesarian, Wine, Haberman, Transfusion, Immunotherapy, Balance Scale, and Glass) show that both algorithms benefit from the proposed subroutine, achieving at least a 50% reduction in the number of required qubits, while maintaining a similar overall performance. For Shuld's algorithm, the performance improved in Cryotherapy (68.89% accuracy compared to 64.44%) and Balance Scale (85.33% F1 score compared to 78.89%), was worse in Iris (86.0% accuracy compared to 95.33%) and Raisin (77.67% accuracy compared to 81.56%), and remained similar in the remaining nine datasets. While for Quezada's algorithm, the performance improved in Caesarian (68.89% F1 score compared to 58.22%), Haberman (69.94% F1 score compared to 62.31%) and Immunotherapy (76.88% F1 score compared to 69.67%), was worse in Iris (82.67% accuracy compared to 95.33%), Balance Scale (77.97% F1 score compared to 69.21%) and Glass (40.04% F1 score compared to 28.79%), and remained similar in the remaining seven datasets.

Factor-GAN: Enhancing stock price prediction and factor investment with Generative Adversarial Networks

Deep learning, a pivotal branch of artificial intelligence, has increasingly influenced the financial domain with its advanced data processing capabilities. This paper introduces Factor-GAN, an innovative framework that utilizes Generative Adversarial Networks (GAN) technology for factor investing. Leveraging a comprehensive factor database comprising 70 firm characteristics, Factor-GAN integrates deep learning techniques with the multi-factor pricing model, thereby elevating the precision and stability of investment strategies. To explain the economic mechanisms underlying deep learning, we conduct a subsample analysis of the Chinese stock market. The findings reveal that the deep learning-based pricing model significantly enhances return prediction accuracy and factor investment performance in comparison to linear models. Particularly noteworthy is the superior performance of the long-short portfolio under Factor-GAN, demonstrating an annualized return of 23.52% with a Sharpe ratio of 1.29. During the transition from state-owned enterprises (SOEs) to non-SOEs, our study discerns shifts in factor importance, with liquidity and volatility gaining significance while fundamental indicators diminish. Additionally, A-share listed companies display a heightened emphasis on momentum and growth indicators relative to their dual-listed counterparts. This research holds profound implications for the expansion of explainable artificial intelligence research and the exploration of financial technology applications.

Application of graph auto-encoders based on regularization in recommendation algorithms

Social networking has become a hot topic, in which recommendation algorithms are the most important. Recently, the combination of deep learning and recommendation algorithms has attracted considerable attention. The integration of autoencoders and graph convolutional neural networks, while providing an effective solution to the shortcomings of traditional algorithms, fails to take into account user preferences and risks over-smoothing as the number of encoder layers increases. Therefore, we introduce L1 and L2 regularization techniques and fuse them linearly to address user preferences and over-smoothing. In addition, the presence of a large amount of noisy data in the graph data has an impact on feature extraction. To our best knowledge, most existing models do not account for noise and address the problem of noisy data in graph data. Thus, we introduce the idea of denoising autoencoders into graph autoencoders, which can effectively address the noise problem. We demonstrate the capability of the proposed model on four widely used datasets and experimentally demonstrate that our model is more competitive by improving up to 1.3, 1.4, and 1.2, respectively, on the edge prediction task.

Response to Comment on "Feasibility of Raman spectroscopy as a potential in vivo tool to screen for pre-diabetes and diabetes"

This letter aims to reply to Bratchenko and Bratchenko's comment on our paper "Feasibility of Raman spectroscopy as a potential in vivo tool to screen for pre-diabetes and diabetes." Our paper analyzed the feasibility of using in vivo Raman measurements combined with machine learning techniques to screen diabetic and prediabetic patients. We argued that this approach yields high overall accuracy (94.3%) while retaining a good capacity to distinguish between diabetic (area under the receiver-operating curve [AUC] = 0.86) and control classes (AUC = 0.97) and a moderate performance for the prediabetic class (AUC = 0.76). Bratchenko and Bratchenko's comment focuses on the possible overestimation of the proposed classification models and the absence of information on the age of participants. In this reply, we address their main concerns regarding our previous manuscript.

Reinforcement Learning for Quantitative Trading

Quantitative trading (QT), which refers to the usage of mathematical models and data-driven techniques in analyzing the financial market, has been a popular topic in both academia and financial industry since 1970s. In the last decade, reinforcement learning (RL) has garnered significant interest in many domains such as robotics and video games, owing to its outstanding ability on solving complex sequential decision making problems. RL’s impact is pervasive, recently demonstrating its ability to conquer many challenging QT tasks. It is a flourishing research direction to explore RL techniques’ potential on QT tasks. This paper aims at providing a comprehensive survey of research efforts on RL-based methods for QT tasks. More concretely, we devise a taxonomy of RL-based QT models, along with a comprehensive summary of the state of the art. Finally, we discuss current challenges and propose future research directions in this exciting field.

STTM: an efficient approach to estimating news impact on stock movement direction

Open text data, such as financial news, are thought to be able to affect or to describe stock market behavior, however, there are no widely accepted algorithms for extracting the relationship between stock quotes time series and fast-growing textual representation of economic information. The field remains challenging and understudied. In particular, topic modeling as a powerful tool for interpretable dimensionality reduction has been hardly ever used for such tasks. We present a topic modeling framework for assessing the relationship between financial news stream and stock prices in order to maximize trader's gain. To do so, we use a dataset of economic news sections of three Russian national media sources (Kommersant, Vedomosti, and RIA Novosti) containing 197,678 economic articles. They are used to predict 39 time series of the most liquid Russian stocks collected over eight years, from 2013 to 2021. Our approach shows the ability to detect significant return-predictive signals and outperforms 26 existing models in terms of Sharpe ratio and annual return of simple long strategy. In particular, it shows a significant Granger causal relationship for more than 70% of portfolio stocks. Furthermore, the approach produces highly interpretable results, requires no domain-specific dictionaries, and, unlike most existing industrial solutions, can be calibrated for individual time series. This makes it directly usable for trading strategies and analytical tasks. Finally, since topic modeling shows its efficiency for most European languages, our approach is expected to be transferrable to European stock markets as well.

A hybrid model integrating long short-term memory with adaptive genetic algorithm based on individual ranking for stock index prediction

Modeling and forecasting stock prices have been important financial research topics in academia. This study seeks to determine whether improvements can be achieved by forecasting a stock index using a hybrid model and incorporating financial variables. We extend the literature on stock market forecasting by applying a hybrid model that combines wavelet transform (WT), long short-term memory (LSTM), and an adaptive genetic algorithm (AGA) based on individual ranking to predict stock indices for the Dow Jones Industrial Average (DJIA) index of the New York Stock Exchange, Standard & Poor’s 500 (S&P 500) index, Nikkei 225 index of Tokyo, Hang Seng Index of Hong Kong market, CSI300 index of Chinese mainland stock market, and NIFTY50 index of India. The results indicate an overall improvement in forecasting of the stock index using the AGA-LSTM model compared to the benchmark models. The evaluation indicators prove that this model has a higher prediction accuracy when forecasting six stock indices.

Prediction of Self-Healing of Engineered Cementitious Composite Using Machine Learning Approaches

Engineered cementitious composite (ECC) is a unique material, which can significantly contribute to self-healing based on ongoing hydration. However, it is difficult to model and predict the self-healing performance of ECC. Although different machine learning (ML) algorithms have been utilized to predict several properties of concrete, the application of ML on self-healing prediction is considerably rare. This paper aims to provide a comparative analysis on the performance of various machine learning models in predicting the self-healing capability of ECC. These models include four individual methods, linear regression (LR), back-propagation neural network (BPNN), classification and regression tree (CART), and support vector regression (SVR). To improve prediction accuracy, three ensemble methods, namely bagging, AdaBoost, and stacking, were also studied. A series of experimental works on the self-healing performance of ECC samples was conducted, and the results were used to develop and compare the accuracy among the ML models. The comparison results showed that the Stack_LR model had the best predictive performance, showing the highest coefficient of determination (R2), the lowest root-mean-squared error (RMSE), and the smallest prediction error (MAE). Among all individual models studies, the BPNN model performed the best in terms of the RMSE and R2, while SVR performed the best in terms of the MAE. Furthermore, SVR had the smallest prediction error (MAE) for crack widths less than 60 μm or greater than 100 μm, while CART had the smallest prediction error (MAE) for crack widths between 60 μm and 100 μm. The study concluded that the individual and ensemble methods can be used to predict the self-healing of ECC. Ensemble models were able to improve the accuracy of prediction compared to the individual model used as their base learner, i.e., a 2.3% to 4.9% reduction in MAE. However, selecting an appropriate individual and ensemble method is critical. To improve the performance accuracy, researchers should employ different ensemble methods to compare their effectiveness with different ML models.

A decade in review: use of data analytics within the biopharmaceutical sector

There are large amounts of data generated within the biopharmaceutical sector. Traditionally, data analysis methods labelled as multivariate data analysis have been the standard statistical technique applied to interrogate these complex data sets. However, more recently there has been a surge in the utilisation of a broader set of machine learning algorithms to further exploit these data. In this article, the adoption of data analysis techniques within the biopharmaceutical sector is evaluated through a review of journal articles and patents published within the last ten years. The papers objectives are to identify the most dominant algorithms applied across different applications areas within the biopharmaceutical sector and to explore whether there is a trend between the size of the data set and the algorithm adopted.

The Predictive Ability of Quarterly Financial Statements

A fundamental role of financial reporting is to provide information useful in forecasting future cash flows. Applying up-to-date time series modelling techniques, this study provides direct evidence on the usefulness of quarterly data in predicting future operating cash flows. Moreover, we show that the predictive gain from using quarterly data is larger for asset-heavy industries and industries with higher levels of earnings smoothness. This study contributes to the accounting literature by examining the usefulness of quarterly financial statements in predicting the realization of future cash flows. Our results help fill the gap in knowledge on quarterly financial statements and provide new insights on why the frequency of financial reporting matters. In addition, our findings have important policy implications for the ongoing debate over interim reporting requirements in multiple jurisdictions around the world.

Legaltech and Lawtech: Global Perspectives, Challenges, and Opportunities

Legaltech refers to the application of new technologies to the world of law, to carry out tasks that, until recently, were performed by lawyers or other personnel working in law firms. From 2015 onwards the Lawtech alternative has emerged. In this work, the concepts of Legaltech and Lawtech have been analyzed by searching the two main scientific information databases such as Scopus and Wed of Science (WoS). There has been a clear trend to use the concept of Legaltech against Lawtech. Six clear research lines have been detected from the whole of the published documents regarding these concepts. These are the related to Computer Science, Justice, Legal profession, Legal design, Law firms, and Legal Education. It is proposed to use the term Legaltech to include all technological advances in the legal field. From the point of view of opportunities, the irruption of Legaltech will be able to offer accurate legal advice to the public, reducing the price of this and on the other hand, analyze large amounts of data that law firms and legal advisors will use to improve their management and increase their productivity. In short, Legaltech and Lawtech are opening up new opportunities in the legal sector encouraging technological innovation, giving greater access to legal services, even try to achieve the goal of universal access to justice.

Fusion in stock market prediction: A decade survey on the necessity, recent developments, and potential future directions

Investment in a financial market is aimed at getting higher benefits; this complex market is influenced by a large number of events wherein the prediction of future market dynamics is challenging. The investors' etiquettes towards stock market may demand the need of studying various associated factors and extract the useful information for reliable forecasting. Fusion can be considered as an approach to integrate data or characteristics, in general, and enhance the prediction based on the combinational approach that can aid each other. We conduct a systematic approach to present a survey for the years 2011-2020 by considering articles that have used fusion techniques for various stock market applications and broadly categorize them into information fusion, feature fusion, and model fusion. The major applications of stock market include stock price and trend prediction, risk analysis and return forecasting, index prediction, as well as portfolio management. We also provide an infographic overview of fusion in stock market prediction and extend our survey for other finely addressed financial prediction problems. Based on our surveyed articles, we provide potential future directions and concluding remarks on the significance of applying fusion in stock market.

Comparative Study on Exponentially Weighted Moving Average Approaches for the Self-Starting Forecasting

Recently, a number of data analysists have suffered from an insufficiency of historical observations in many real situations. To address the insufficiency of historical observations, self-starting forecasting process can be used. A self-starting forecasting process continuously updates the base models as new observations are newly recorded, and it helps to cope with inaccurate prediction caused by the insufficiency of historical observations. This study compared the properties of several exponentially weighted moving average methods as base models for the self-starting forecasting process. Exponentially weighted moving average methods are the most widely used forecasting techniques because of their superior performance as well as computational efficiency. In this study, we compared the performance of a self-starting forecasting process using different existing exponentially weighted moving average methods under various simulation scenarios and real case datasets. Through this study, we can provide the guideline for determining which exponentially weighted moving average method works best for the self-starting forecasting process.