A comparison of forecasting approaches for capital markets

In recent years, machine learning algorithms have become increasingly popular in financial forecasting. Their flexible, data-driven nature makes them ideal candidates for dealing with complex financial data. This paper investigates the effectiveness of a number of machine learning algorithms, and combinations of these algorithms, at generating one-step ahead forecasts of a number of financial time series. We find that hybrid models consisting of a linear statistical model and a nonlinear machine learning algorithm are effective at forecasting future values of the series, particularly in terms of the future direction of the series.

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