Publication Type

Conference Proceeding Article

Version

publishedVersion

Publication Date

8-2023

Abstract

Multi-step stock price prediction over a long-term horizon is crucial for forecasting its volatility, allowing financial institutions to price and hedge derivatives, and banks to quantify the risk in their trading books. Additionally, most financial regulators also require a liquidity horizon of several days for institutional investors to exit their risky assets, in order to not materially affect market prices. However, the task of multi-step stock price prediction is challenging, given the highly stochastic nature of stock data. Current solutions to tackle this problem are mostly designed for single-step, classification-based predictions, and are limited to low representation expressiveness. The problem also gets progressively harder with the introduction of the target price sequence, which also contains stochastic noise and reduces generalizability at test-time.To tackle these issues, we combine a deep hierarchical variational-autoencoder (VAE) and diffusion probabilistic techniques to do seq2seq stock prediction through a stochastic generative process. The hierarchical VAE allows us to learn the complex and low-level latent variables for stock prediction, while the diffusion probabilistic model trains the predictor to handle stock price stochasticity by progressively adding random noise to the stock data. To deal with the additional stochasticity in the target price sequence, we also augment the target series with noise via a coupled diffusion process. We then perform a denoising process to "clean" the prediction outputs that were trained on the stochastic target sequence data, which increases the generalizability of the model at test-time. Our Diffusion-VAE (D-Va) model is shown to outperform state-of-the-art solutions in terms of its prediction accuracy and variance. Through an ablation study, we also show how each of the components introduced helps to improve overall prediction accuracy by reducing the data noise. Most importantly, the multi-step outputs can also allow us to form a stock portfolio over the prediction length. We demonstrate the effectiveness of our model outputs in the portfolio investment task through the Sharpe ratio metric and highlight the importance of dealing with different types of prediction uncertainties. Our code can be accessed through https://github.com/koa-fin/dva.

Keywords

Sequential Recommendation, Large Language Models, Embedding Models

Discipline

Databases and Information Systems | Programming Languages and Compilers

Research Areas

Intelligent Systems and Optimization

Areas of Excellence

Digital transformation

Publication

KDD '25: Proceedings of the 31st ACM SIGKDD Conference on Knowledge Discovery and Data Mining V.2, Toronto, Canada, August 3-7

First Page

1087

Last Page

1096

Identifier

10.1145/3583780.3614844

Publisher

ACM

City or Country

New York

Additional URL

https://doi.org/10.1145/3583780.3614844

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