Stock price forecasting based on the relationship among Asian stock markets using deep learning

Abstract

SummaryThe stock price fluctuation of one country can be influenced by the movement of the stock price of other countries implying that there exists some relationship among various stock markets. This study examines the interrelationship among Asian stock markets and forecasts the stock market on the basis of the relationship that exists among Asian stock markets. The interrelationship is tested by using the Granger causality (GC) test and Pearson's correlation (PC) matrix. Further, a deep learning model namely a long short term memory (LSTM) neural network is utilized to forecast the stock price of one country by using the price of other countries that have a correlation and causal relationship with the target stock market. PC matrix shows that there exists a strong correlation among Asian stock markets. Results from the GC show that there exists a unidirectional relationship between Sensex and NIKKEI 225 to SSE composite index, Sensex to NIKKEI 225, and Sensex and TSEC weighted index to KOSPI composite index and a bi‐directional relationship among Sensex, TSEC weighted index and Hang Seng index. Experimental results show that GC and LSTM‐based model namely GC‐LSTM shows better forecasting performance in comparison to PC and LSTM‐based model termed as PC‐LSTM.

The application of the propensity score matching method in stock prediction among stocks within the same industry

“…Several studies underscore the existence of interdependence effects among stocks, emphasizing their significance in financial modeling ( Atahau, Robiyanto & Huruta, 2022 ; Bai, Cui & Zhang, 2019 ; Fang et al, 2018 ; Huang & Wang, 2018 ; Kumar, Singh & Jain, 2023 ; Lee, 2021 ; Li & Wei, 2018 ; Ma et al, 2022 ; Ma et al, 2019 ; Nasreen et al, 2020 ; Niu, 2021 ; Wang et al, 2018 ; Wang & Chong, 2018 ; Wang et al, 2019 ; Wu et al, 2021 ; Xu et al, 2017 ; Zhao et al, 2022 ; Zhou et al, 2023 ). For instance, Ma et al (2019) investigated market linkage between Shanghai and Hong Kong.…”