An ontology based framework for mining dependence relationships between news and financial instruments

Before news is input into financial trading algorithms/models, it needs human judgements for exploring the market implications of news content, distinguishing significance extent of news, and finding out the impact of polar type of each kind of news on certain financial instrument trading activity. But Dawes and Faust (1989) reported that people usually rely on clinical judgements, especially it is hard for them to distinguish valid decision variables from invalid ones in decision making. Thus, in order to alleviate this problem and provide more objective decision making support about news in financial market, an ontology based framework is proposed, for investigating the actuarial dependence relationships between news and financial instruments trading activities as well as identifying more valid news for trading decision making. This framework is expected to help people in financial market how to consider weight for each kind of news when inputted in trading algorithms/models of certain financial instruments.     

Popular News Are Relevant News! How Investor Attention Affects Algorithmic Decision-Making and Decision Support in Financial Markets

Algorithmic decision-making plays an important role in financial markets. Current tools in trading focus on popular companies which are discussed in thousands of news items. However, it remains unclear whether methodologies from the field of data analytics relying on large samples can also be applied to small datasets of less popular companies or whether these methodologies lead to the discovery of meaningless patterns resulting in economic losses. We analyze whether the impact of media sentiment on financial markets is influenced by two levels of investor attention and whether this impacts algorithmic decision-making. We find that the influence differs substantially between news and companies with high and low investor attention. We apply a trading simulation to outline the practical consequences of these interrelations for decision support systems. Our results are of high importance for financial market participants, especially for algorithmic traders that consider sentiment for investment decision support.

     

Semantics-based information extraction for detecting economic events

As today’s financial markets are sensitive to breaking news on economic events, accurate and timely automatic identification of events in news items is crucial. Unstructured news items originating from many heterogeneous sources have to be mined in order to extract knowledge useful for guiding decision making processes. Hence, we propose the Semantics-Based Pipeline for Economic Event Detection (SPEED), focusing on extracting financial events from news articles and annotating these with meta-data at a speed that enables real-time use. In our implementation, we use some components of an existing framework as well as new components, e.g., a high-performance Ontology Gazetteer, a Word Group Look-Up component, a Word Sense Disambiguator, and components for detecting economic events. Through their interaction with a domain-specific ontology, our novel, semantically enabled components constitute a feedback loop which fosters future reuse of acquired knowledge in the event detection process.     

The role of algorithmic trading systems on stock market efficiency

The rapid development of information technology has changed the dynamics of financial markets. The main purpose of this study is laid on examining the role of IT based stock trading on financial market efficiency. This research specifically focused on algorithmic trading. Algorithmic trading enables investors to trade stocks through a computer program without the need for human interventions. Based on an empirical analysis of the Korean stock market, this study discovered the positive impact of algorithmic trading on stock market efficiency at three-fold. First, the study results indicate that algorithmic trading contributes to the reduction in asymmetric volatility, which causes inefficiency of information in a stock market. Second, an algorithmic trading also increases the operation efficiency of a stock market. Arbitrage trading contributes on the equilibrium between the spot market and futures market as well as on the price discovery. Third, algorithmic trading provides liquidity for market participants contributing to friction free transactions. The research results indicate that stock exchanges based on electronic communications networks (ECNs) without human intervention could augment a financial market quality by increasing trading share volumes and market efficiency so that it can eventually contribute to the welfare of market investors.     

Using multi-agent simulation to understand trading dynamics of a derivatives market

A fundamental question that arises in derivative pricing is why investors trade in a particular derivative at a “fair” price supplied by Arbitrage Pricing Theory (APT). APT establishes a price that is fair for a disinterested investor with a particular set of beliefs about market evolution and attributes trading to differences in those beliefs entertained by the opposite sides of the transaction.We present a model for an investor in a frictionless market that combines investors’ incentives in the form of pre-existing liability structures with derivatives pricing procedure tailored for a particular investor. This model enables us to show, through a series of experiments, that investors trade even when their belief structures are identical and accurate.More generally, our study suggests that multi-agent simulation of a financial market can provide a mechanism for conducting experiments that shed light on fundamental properties of the market. As all processes in financial markets (including decision making) become automated, it becomes crucial to have a mechanism by which we can observe the patterns that emerge from a variety of possible investor behaviors. Our simulator, designed as a dealer’s market, provides such a mechanism within a certain range of models.     

An ontology for representing financial headline news

This paper presents the development of an ontology to represent financial headline news. This ontology is developed using the On-To-Knowledge methodology where the focus is on the design steps of the Knowledge Meta Process. This development is part of an ongoing project which aims to design a virtual stock market simulator based on multi-agent systems. The proposed ontology has 31 concepts and includes 201 attributes. The testing results conducted on reliable headline news show that 99% of these headline news can be properly represented by the attributes of the right category in the ontology. Unreliable headline news characterized by news having uncertainties, incompleteness, ill-definition, or imprecision cannot be represented by the proposed ontology. Approaches for representing these unreliable headline news are discussed.     

新闻社区领域本体构建研究

针对新闻社区领域知识的特点,以新闻社区领域知识的网络应用为目的,根据新闻社区领域本体总体构建流程,采用半自动化构建本体的方法,以通用本体WordNet及ODP开放式目录中不同层次的新闻主题分类为基础,按照媒体流程展开本体概念结构,构建了面向新闻网站应用的新闻社区领域顶层和中层本体模型。利用本体构建工具Protégé4.1开发了新闻社区领域本体。     

A generalized model for financial time series representation and prediction

Traditional financial analysis systems utilize low-level price data as their analytical basis. For example, a decision-making system for stock predictions regards raw price data as the training set for classifications or rule inductions. However, the financial market is a complex and dynamic system with noisy, non-stationary and chaotic data series. Raw price data are too random to characterize determinants in the market, preventing us from reliable predictions. On the other hand, high-level representation models which represent data on the basis of human knowledge of the problem domain can reduce the randomness in the raw data. In this paper, we present a high-level representation model easy to translate from low-level data into the machine representation. It is a generalized model in that it can accommodate multiple financial analytical techniques and intelligent trading systems. To demonstrate this, we further combine the representation with a probabilistic model for automatic stock trades and provide promising results. An erratum to this article can be found at     

Bridging the divide in financial market forecasting: machine learners vs. financial economists

Financial time series forecasting is a popular application of machine learning methods. Previous studies report that advanced forecasting methods predict price changes in financial markets with high accuracy and that profit can be made trading on these predictions. However, financial economists point to the informational efficiency of financial markets, which questions price predictability and opportunities for profitable trading. The objective of the paper is to resolve this contradiction. To this end, we undertake an extensive forecasting simulation, based on data from thirty-four financial indices over six years. These simulations confirm that the best machine learning methods produce more accurate forecasts than the best econometric methods. We also examine the methodological factors that impact the predictive accuracy of machine learning forecasting experiments. The results suggest that the predictability of a financial market and the feasibility of profitable model-based trading are significantly influenced by the maturity of the market, the forecasting method employed, the horizon for which it generates predictions and the methodology used to assess the model and simulate model-based trading. We also find evidence against the informational value of indicators from the field of technical analysis. Overall, we confirm that advanced forecasting methods can be used to predict price changes in some financial markets and we discuss whether these results question the prevailing view in the financial economics literature that financial markets are efficient.     

Adapting domain ontology for personalized knowledge search and recommendation

This paper presents research on the development of a domain ontology adaptation system for personalized knowledge search and recommendation that adapts a suitable domain ontology according to the previous browsing and reading behavior of users (i.e., usage history log). An adaptive domain ontology can satisfy the future requirements of users and promote use value. In developing the system, a domain ontology adaptation model is first designed. Based on the designed adaptation model, a methodology for domain ontology adaptation is developed. Subsequently, a domain ontology adaptation system is implemented with an illustrative example of securities trading. Finally, a system evaluation for user satisfaction and a methodology evaluation are conducted to demonstrate that the developed methodology and system worked efficiently.     

A fuzzy ontology and its application to news summarization.

In this paper, a fuzzy ontology and its application to news summarization are presented. The fuzzy ontology with fuzzy concepts is an extension of the domain ontology with crisp concepts. It is more suitable to describe the domain knowledge than domain ontology for solving the uncertainty reasoning problems. First, the domain ontology with various events of news is predefined by domain experts. The document preprocessing mechanism will generate the meaningful terms based on the news corpus and the Chinese news dictionary defined by the domain expert. Then, the meaningful terms will be classified according to the events of the news by the term classifier. The fuzzy inference mechanism will generate the membership degrees for each fuzzy concept of the fuzzy ontology. Every fuzzy concept has a set of membership degrees associated with various events of the domain ontology. In addition, a news agent based on the fuzzy ontology is also developed for news summarization. The news agent contains five modules, including a retrieval agent, a document preprocessing mechanism, a sentence path extractor, a sentence generator, and a sentence filter to perform news summarization. Furthermore, we construct an experimental website to test the proposed approach. The experimental results show that the news agent based on the fuzzy ontology can effectively operate for news summarization.     

Correlation and hierarchies in financial markets

As an emerging financial market, the trading value of carbon emission trading market has definitely increased in recent years. The carbon emission is not only trading in carbon emitters but also has become an important investment target. To determine the mechanism of this growing market, we analyzed the EU allowances (EUA) price series in European Climate Exchange (ECX) that is the leading European emissions futures market. As other financial market, the absolute value of price change (volatility) in carbon emission trading market also shows long-term power-law correlations. Our analysis shows that definite cross correlations exist between EUA and many other markets. These cross correlations exist in wild-range fields, stock market index, futures of crude, sugar, cocoa, etc., suggesting that in this new carbon emission trading market the speculation behavior had already become a main factor that can affect the price change.     

Financial markets sentiment analysis: developing a specialized Lexicon

Journal of Intelligent Information Systems - Natural language processing in specific domains such as financial markets requires the knowledge of domain ontology. Therefore, developing a...     

The economics of stock touting during Internet‐based pump and dump campaigns

Information systems have facilitated the increase in relevance of financial markets. Nevertheless, the rise of the Internet has eased information‐based financial market manipulations. In this study, we examine the phenomenon of stock touting during pump and dump campaigns, in which deceivers advertise stocks to profit from an increased price level. We observe that the positive prospects promised are not confirmed by corporate disclosures and financial news. Furthermore, manipulators select targeted financial instruments based on specific stock and company characteristics. Manipulators avoid signals of anomaly and prefer unknown stocks. We find that stock touting has a positive market impact but that it is followed by a large decline in stock price in the subsequent days, causing investors to lose substantial amounts of their investments. We consider the impact of information generation, information content, and information presentation on the corresponding market reaction. Interestingly, information generation influences the demand for the stock, but information content and information presentation drive the willingness to pay. Our results are highly relevant for Internet users, software vendors, and market surveillance authorities, as a deep understanding of such information‐based manipulations is necessary to develop appropriate countermeasures.     

Price efficiency in futures and spot trading: The role of information technology

During the last years information technology has had a profound impact on financial markets. The speed of trading and the amount of available information has increased substantially. Nearly all exchanges have upgraded their trading systems to meet the demand of investors and enhance their competitive position. However, the impact on liquidity and price efficiency remains unclear. In this paper we present an event study to examine the effects of an infrastructure change at the Deutsche Börse in Germany. On April 23, 2007, Deutsche Börse released an upgraded version of their electronic trading system Xetra. We study the impact that this upgrade had on the efficiency of prices, measured as the pricing gaps between the observed futures prices and their theoretical values based on the underlying cash market. Our results suggest that the system upgrade reduced the pricing gapand thus improved price efficiency.     

The Interplay Between Two Stock Markets and a Related Foreign Exchange Market: A Simulation Approach

There is still much that is unknown about the interactions among financial markets, and about the relationships between stock prices and exchange rates. This topic gains attention during financial crises, and many papers try to find empirical regularities emerging from financial data, or to study contagion processes. In this paper we present a study on the interplay between two stock markets and one foreign exchange market extending the framework provided by the Genoa Artificial Stock Market. There are four different trading strategies, and the agents are divided into two groups: those who trade in the stock markets and those who trade in the FOREX. We studied three market conditions: the FOREX dynamics, the behavior of the two stock markets together with the FOREX, and finally we conducted a what-if analysis for testing the effects of a inflationary monetary shock of one currency affecting all of the three markets.     

Developing taxonomy for the domain ontology of construction contractual semantics: A case study on the AIA A201 document

In construction contractual management, sharing experts’ domain knowledge through ontology is a good way to narrow the knowledge gap between the domain experts and the construction team. However, little work has been done on ontology taxonomy development in this domain. Based on a literature review on sharing domain knowledge, taxonomy development methods and the essence of construction contracts, this study proposes a synthesized methodology for taxonomy development in the domain of construction contractual semantics. This methodology is based on an ontological model extracted from definitions found in the contract, and uses common root concepts as the initial root concept classes, and includes the iterative development and competency questions approaches as well. In the case study, using the research results from pilot studies, the proposed methodology was applied to the AIA A201 General Conditions of the Contract for Construction (2007) document at the textual level. As a result, a taxonomy was developed which was used to determine the validity of the proposed methodology. The taxonomy development methodology and the developed taxonomy itself are both valuable contributions in the quest to further develop ontology-based applications for sharing domain knowledge about construction contract semantics.     

Equilibrium Prices on a Financial Graph

The analysis of financial markets usually assumes that trades are centralized and open to all investors. Investors are typically price takers. A relatively recent interest has been devoted to local markets open to a limited number of traders. Such markets may be fruitfully analyzed by means of graphs where traders are the nodes and trades are the arcs. In this model one bilateral trade occurs each round. Agents are risk averse and act myopically seeking to maximize their expected utility. Conditions for the agents to trade and to find an equilibrium price are determined theoretically. An ad-hoc algorithm is applied to find a numerical solution and to simulate the path toward the equilibrium price depending on different initial settings.     

语义传感器Web中传感器本体的构建及应用

语义传感器Web的出现为物联网中传感器系统间的数据互操作、信息共享和知识融合提供了实现方式,传感器本体的构建则是实现这些功能的前提.本文在参考万维网联盟提出的语义传感器网络本体的基础上,对传感器及配套的数据采集仪构建了对应的本体,为传感器系统提供了有效的知识组织模型.通过建立的传感器和数据采集仪本体,可以实现传感器的自动分类管理,设定推理规则后可以提供传感器和采集仪间的配接推荐,提高检测现场多传感器系统设计的效率和可靠性,将领域知识应用到系统设计和管理中.最后以具体的传感器实例对推理规则进行了测试,结果满足应用要求.     

Trend following deep Q-Learning strategy for stock trading

Computers and algorithms are widely used to help in stock market decision making. A few questions with regards to the profitability of algorithms for stock trading are can computers be trained to beat the markets? Can an algorithm take decisions for optimal profits? And so forth. In this research work, our objective is to answer some of these questions. We propose an algorithm using deep Q-Reinforcement Learning techniques to make trading decisions. Trading in stock markets involves potential risk because the price is affected by various uncertain events ranging from political influences to economic constraints. Models that trade using predictions may not always be profitable mainly due to the influence of various unknown factors in predicting the future stock price. Trend Following is a trading idea in which, trading decisions, like buying and selling, are taken purely according to the observed market trend. A stock trend can be up, down, or sideways. Trend Following does not predict the stock price but follows the reversals in the trend direction. A trend reversal can be used to trigger a buy or a sell of a certain stock. In this research paper, we describe a deep Q-Reinforcement Learning agent able to learn the Trend Following trading by getting rewarded for its trading decisions. Our results are based on experiments performed on the actual stock market data of the American and the Indian stock markets. The results indicate that the proposed model outperforms forecasting-based methods in terms of profitability. We also limit risk by confirming trading actions with the trend before actual trading.