The detection and prediction of risk in financial markets is one of the main challenges of economic forecasting, and draws much attention from the scientific community. An even more challenging task is the prediction of the future relative gain of companies. We here develop a novel combination of product text analysis, network theory and topological based machine learning to study the future performance of companies in financial markets. Our network links are based on the similarity of firms’ products and constructed using the Securities Exchange Commission (SEC) filings of US listed firms. We find that several topological features of this network can serve as good precursors of risks or future gain of companies. We then apply machine learning to network attributes vectors for each node to predict successful and failing firms. The resulting accuracies are much better than current state of the art techniques. The framework presented here not only facilitates the prediction of financial markets but also provides insight and demonstrates the power of combining network theory and topology based machine learning.
- Machine learning
FAN, J., COHEN, K., SHEKHTMAN, L. M., LIU, S., MENG, J., LOUZOUN, Y., & HAVLIN, S. (2019). Topology of products similarity network for market forecasting. Applied Network Science, 4(1), . https://doi.org/10.1007/s41109-019-0171-y