Enhancing Directional Accuracy in Stock Closing Price Value Prediction Using a Direction-Integrated MSE Loss Function

Haojie Yin

2023

Abstract

In financial markets, Long Short-Term Memory (LSTM) and Bidirectional Long Short-Term Memory (BiLSTM) models have been proved to achieve high “accuracy” in predicting the next closing price. However, such “accuracy” is commonly referred to price value accuracy-how close the predicted and real prices are. Many prediction models neglect the directional accuracy of predicted prices due to the natural characteristic of Mean Square Error (MSE) as loss function. A predicted price with accurate value can potentially be in the wrong direction which causes significant loss to investors and traders’ wealth. Instead, a useful prediction requires both the correct direction and a value close to real prices. To achieve such a combination and improve directional accuracy, a novel loss function Direction-Integrated Mean Square Error (DI-MSE) is introduced by incorporating directional loss information to conventional MSE. Among 28 stocks including both single stock and stock indices, such as Apple or SP500, DI-MSE is shown to increase the average directional accuracy to nearly 60%. At the same time, the average value accuracy of predicted price remains around 98%.

Paper Citation

in Harvard Style

Yin H. (2023). Enhancing Directional Accuracy in Stock Closing Price Value Prediction Using a Direction-Integrated MSE Loss Function. In Proceedings of the 1st International Conference on Data Analysis and Machine Learning - Volume 1: DAML; ISBN 978-989-758-705-4, SciTePress, pages 119-126. DOI: 10.5220/0012810200003885

in Bibtex Style

@conference{daml23,
author={Haojie Yin},
title={Enhancing Directional Accuracy in Stock Closing Price Value Prediction Using a Direction-Integrated MSE Loss Function},
booktitle={Proceedings of the 1st International Conference on Data Analysis and Machine Learning - Volume 1: DAML},
year={2023},
pages={119-126},
publisher={SciTePress},
organization={INSTICC},
doi={10.5220/0012810200003885},
isbn={978-989-758-705-4},
}

in EndNote Style

TY - CONF

JO - Proceedings of the 1st International Conference on Data Analysis and Machine Learning - Volume 1: DAML
TI - Enhancing Directional Accuracy in Stock Closing Price Value Prediction Using a Direction-Integrated MSE Loss Function
SN - 978-989-758-705-4
AU - Yin H.
PY - 2023
SP - 119
EP - 126
DO - 10.5220/0012810200003885
PB - SciTePress