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Forecasting stock volatility process using improved least square support vector machine approach

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Abstract

Considering that the stock returns distribution displays leptokurtosis as well as left-skewed properties, and the returns volatility process exhibits heteroscedasticity as well as clustering effects, the asymmetric GARCH-type models with non-Gaussian distributions (AGARCH-nG) are employed to describe the volatility process. In addition, the AGARCH-nG models are hybridized with artificial neural network (ANN) technique for forecasting stock returns volatility. Since the least square support vector machine (LS-SVM) technique displays strong forecast ability, we present an improved particle swarm optimization (IPSO) algorithm to optimize the parameters of LS-SVM technique in the process of stock returns volatility prediction. Then, we compare the forecasting performances of individual AGARCH-nG models, the hybrid AGARCH-nG-ANN methods and the data mining-based LS-SVM-IPSO method using stock markets data. The empirical results verify the effectiveness and superiority of the proposed method, which demonstrates that the LS-SVM-IPSO approach outperforms the AGARCH-type models with non-Gaussian distributions and those integrating with the artificial neural network methods.

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Acknowledgements

We would like to acknowledge the financial support from the National Social Science Foundation of China (No. 18BGL200), the National Natural Science Foundation of China (No. 71532009), Research funding of Qingdao University (No. 41118010080).

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Authors and Affiliations

  1. School of Economics, Qingdao University, Qingdao, 266061, China

    Xiao-Li Gong & Xi-Hua Liu

  2. College of Management and Economics, Tianjin University, Tianjin, 300072, China

    Xiong Xiong

  3. China Center for Social Computing and Analytics, Tianjin, 300072, China

    Xiong Xiong

  4. School of Business Administration, Northeastern University, Shenyang, 110169, China

    Xin-Tian Zhuang

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  1. Xiao-Li Gong
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  2. Xi-Hua Liu
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  3. Xiong Xiong
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  4. Xin-Tian Zhuang
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Correspondence to Xi-Hua Liu.

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Gong, XL., Liu, XH., Xiong, X. et al. Forecasting stock volatility process using improved least square support vector machine approach. Soft Comput 23, 11867–11881 (2019). https://doi.org/10.1007/s00500-018-03743-0

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