Predicting the Movement Direction of OMXS30 Stock Index Using XGBoost and Sentiment Analysis

Sammanfattning: Background. Stock market prediction is an active yet challenging research area. A lot of effort has been put in by both academia and practitioners to produce accurate stock market predictions models, in the attempt to maximize investment objectives. Tree-based ensemble machine learning methods such as XGBoost have proven successful in practice. At the same time, there is a growing trend to incorporate multiple data sources in prediction models, such as historical prices and text, in order to achieve superior forecasting performance. However, most applications and research have so far focused on the American or Asian stock markets, while the Swedish stock market has not been studied extensively from the perspective of hybrid models using both price and text derived features.  Objectives. The purpose of this thesis is to investigate whether augmenting a numerical dataset based on historical prices with sentiment features extracted from financial news improves classification performance when predicting the daily price trend of the Swedish stock market index, OMXS30. Methods. A dataset of 3,517 samples between 2006 - 2020 was collected from two sources, historical prices and financial news. XGBoost was used as classifier and four different metrics were employed for model performance comparison given three complementary datasets: the dataset which contains only the sentiment feature, the dataset with only price-derived features and finally, the dataset augmented with sentiment feature extracted from financial news.  Results. Results show that XGBoost has a good performance in classifying the daily trend of OMXS30 given historical price features, achieving an accuracy of 73% on the test set. A small improvement across all metrics is recorded on the test set when augmenting the numerical dataset with sentiment features extracted from financial news.  Conclusions. XGBoost is a powerful ensemble method for stock market prediction, reflected in a satisfactory classification performance of the daily movement direction of OMXS30. However, augmenting the numerical input set with sentiment features extracted from text did not have a powerful impact on classification performance in this case, as the improvements across all employed metrics were small.