Predicating Daily Stock Ratings via Artificial Neural Network

Investing Strategies

  1. The first is an active strategy where the investor believes in a hands-on approach and aims to beat the stock market’s average return by frequently buying and selling to take advantage of short-term price fluctuations.
  2. The second is a passive strategy — a hands-off approach — where the investor believes that market prices are fundamentally in equilibrium, and therefore does not react to short-term price fluctuations.

Analyst Reports and Recommendations

  • Market price
  • Financial statements
  • Financial ratios
  • Fair value estimates
  • Economic moat
  • Uncertainty
  • Industry/sector factors
  • 5 — Strong Sell
  • 4 — Sell
  • 3 — Hold
  • 2 — Buy
  • 1 — Strong Buy

Project Motivation

Target: Mean Analyst Rating

  • ticker- ticker or trading symbol
  • obs_date- observation date corresponding to the date on which contributed estimates were changed and the consensus was revised
  • rating_cnt_strong_buys- number of Strong Buy recommendations
  • rating_cnt_mod_buys- number of Buy recommendations
  • rating_cnt_holds- number of Hold recommendations
  • rating_cnt_mod_sells- number of Sell recommendations
  • rating_cnt_strong_sells- number of Strong Sell recommendations
  • rating_mean_recom- Consensus analyst rating (arithmetic mean calculation). 1 = Strong Buy, 5 = Strong Sell

Features

  • Market Data — including daily closing price and volume
  • Financial Statement Line ItemsTrailing Twelve Month figures, from the most recent 10-Q/10-K SEC filing. Line items from the income statement, balance sheet, and statement of cash flows were included.
  • Sector/Industry/Exchange — One-hot encoded these categorical features
  • Earnings Surprises — Included this feature to capture if the company is underperforming or outperforming previous analyst earnings estimates
  • Daily Discounted Cash Flow Valuations — A forward-looking metric, unlike the other abovementioned features, which are retrospective in nature.

Data Sources

Feature Engineering

  • Market Capitalization
  • Enterprise Value
  • Dividend Yield
  • Price/Earnings (PE)
  • Price/Earnings/Growth (PEG)
  • Activity Ratios
  • Liquidity Ratios
  • Solvency Ratios
  • Profitability Ratios

Choosing a Performance Metric

Building a Baseline Model — Linear Regression

  • Non-Current Liabilities: +2.48
  • Current Debt: +2.37
  • Net Cash Flow — Common Stock: -2.20
  • Consolidated Income: -1.96
  • Non-Current Assets: -1.80
  • Tax Assets: -1.61
  • Net Cash Flow — Dividends: -1.61
  • Inventory: +1.58
  • Average Equity: +1.47
  • Research & Development Expense: +1.47
  • Deferred Revenue: -1.31
  • Property, Plant, and Equipment — Net: +1.18
  • Net Cash Flow — Inv: -1.09

Building a Neural Network

Web App

Future Work

GitHub

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store