Modelling A.I. in Economics

American Express assigned short-term B1 & long-term B1 forecasted stock rating.

This study presents financial network indicators that can be applied to global stock market investment strategies. We propose to design both undirected and directed volatility networks of global stock market based on simple pair-wise correlation and system-wide connectedness of stock date using a vector auto-regressive model. We evaluate American Express prediction models with Modular Neural Network (CNN Layer) and Statistical Hypothesis Testing1,2,3,4 and conclude that the AXP stock is predictable in the short/long term. According to price forecasts for (n+1 year) period: The dominant strategy among neural network is to Hold AXP stock.


Keywords: AXP, American Express, stock forecast, machine learning based prediction, risk rating, buy-sell behaviour, stock analysis, target price analysis, options and futures.

Key Points

  1. Can statistics predict the future?
  2. How do you decide buy or sell a stock?
  3. What is a prediction confidence?

AXP Target Price Prediction Modeling Methodology

With the advent of machine learning, numerous approaches have been proposed to forecast stock prices. Various models have been developed to date such as Recurrent Neural Networks, Long Short-Term Memory, Convolutional Neural Network sliding window, etc., but were not accurate enough. Here, the aim is to predict the price of a stock and compare the results obtained using three major algorithms namely Kalman filters, XGBoost and ARIMA. We consider American Express Stock Decision Process with Statistical Hypothesis Testing where A is the set of discrete actions of AXP stock holders, F is the set of discrete states, P : S × F × S → R is the transition probability distribution, R : S × F → R is the reaction function, and γ ∈ [0, 1] is a move factor for expectation.1,2,3,4


F(Statistical Hypothesis Testing)5,6,7= p a 1 p a 2 p 1 n p j 1 p j 2 p j n p k 1 p k 2 p k n p n 1 p n 2 p n n X R(Modular Neural Network (CNN Layer)) X S(n):→ (n+1 year) R = r 1 r 2 r 3

n:Time series to forecast

p:Price signals of AXP stock

j:Nash equilibria

k:Dominated move

a:Best response for target price

 

For further technical information as per how our model work we invite you to visit the article below: 

How do AC Investment Research machine learning (predictive) algorithms actually work?

AXP Stock Forecast (Buy or Sell) for (n+1 year)

Sample Set: Neural Network
Stock/Index: AXP American Express
Time series to forecast n: 31 Oct 2022 for (n+1 year)

According to price forecasts for (n+1 year) period: The dominant strategy among neural network is to Hold AXP stock.

X axis: *Likelihood% (The higher the percentage value, the more likely the event will occur.)

Y axis: *Potential Impact% (The higher the percentage value, the more likely the price will deviate.)

Z axis (Yellow to Green): *Technical Analysis%

Adjusted IFRS* Prediction Methods for American Express

  1. To be eligible for designation as a hedged item, a risk component must be a separately identifiable component of the financial or the non-financial item, and the changes in the cash flows or the fair value of the item attributable to changes in that risk component must be reliably measurable.
  2. An entity's documentation of the hedging relationship includes how it will assess the hedge effectiveness requirements, including the method or methods used. The documentation of the hedging relationship shall be updated for any changes to the methods (see paragraph B6.4.17).
  3. For a financial guarantee contract, the entity is required to make payments only in the event of a default by the debtor in accordance with the terms of the instrument that is guaranteed. Accordingly, cash shortfalls are the expected payments to reimburse the holder for a credit loss that it incurs less any amounts that the entity expects to receive from the holder, the debtor or any other party. If the asset is fully guaranteed, the estimation of cash shortfalls for a financial guarantee contract would be consistent with the estimations of cash shortfalls for the asset subject to the guarantee
  4. An entity is not required to incorporate forecasts of future conditions over the entire expected life of a financial instrument. The degree of judgement that is required to estimate expected credit losses depends on the availability of detailed information. As the forecast horizon increases, the availability of detailed information decreases and the degree of judgement required to estimate expected credit losses increases. The estimate of expected credit losses does not require a detailed estimate for periods that are far in the future—for such periods, an entity may extrapolate projections from available, detailed information.

*International Financial Reporting Standards (IFRS) are a set of accounting rules for the financial statements of public companies that are intended to make them consistent, transparent, and easily comparable around the world.

Conclusions

American Express assigned short-term B1 & long-term B1 forecasted stock rating. We evaluate the prediction models Modular Neural Network (CNN Layer) with Statistical Hypothesis Testing1,2,3,4 and conclude that the AXP stock is predictable in the short/long term. According to price forecasts for (n+1 year) period: The dominant strategy among neural network is to Hold AXP stock.

Financial State Forecast for AXP American Express Stock Options & Futures

Rating Short-Term Long-Term Senior
Outlook*B1B1
Operational Risk 5237
Market Risk5776
Technical Analysis8835
Fundamental Analysis3963
Risk Unsystematic7267

Prediction Confidence Score

Trust metric by Neural Network: 78 out of 100 with 541 signals.

References

  1. Li L, Chen S, Kleban J, Gupta A. 2014. Counterfactual estimation and optimization of click metrics for search engines: a case study. In Proceedings of the 24th International Conference on the World Wide Web, pp. 929–34. New York: ACM
  2. Li L, Chen S, Kleban J, Gupta A. 2014. Counterfactual estimation and optimization of click metrics for search engines: a case study. In Proceedings of the 24th International Conference on the World Wide Web, pp. 929–34. New York: ACM
  3. Wooldridge JM. 2010. Econometric Analysis of Cross Section and Panel Data. Cambridge, MA: MIT Press
  4. Imbens GW, Lemieux T. 2008. Regression discontinuity designs: a guide to practice. J. Econom. 142:615–35
  5. Athey S, Bayati M, Imbens G, Zhaonan Q. 2019. Ensemble methods for causal effects in panel data settings. NBER Work. Pap. 25675
  6. Bengio Y, Ducharme R, Vincent P, Janvin C. 2003. A neural probabilistic language model. J. Mach. Learn. Res. 3:1137–55
  7. uyer, S. Whiteson, B. Bakker, and N. A. Vlassis. Multiagent reinforcement learning for urban traffic control using coordination graphs. In Machine Learning and Knowledge Discovery in Databases, European Conference, ECML/PKDD 2008, Antwerp, Belgium, September 15-19, 2008, Proceedings, Part I, pages 656–671, 2008.
Frequently Asked QuestionsQ: What is the prediction methodology for AXP stock?
A: AXP stock prediction methodology: We evaluate the prediction models Modular Neural Network (CNN Layer) and Statistical Hypothesis Testing
Q: Is AXP stock a buy or sell?
A: The dominant strategy among neural network is to Hold AXP Stock.
Q: Is American Express stock a good investment?
A: The consensus rating for American Express is Hold and assigned short-term B1 & long-term B1 forecasted stock rating.
Q: What is the consensus rating of AXP stock?
A: The consensus rating for AXP is Hold.
Q: What is the prediction period for AXP stock?
A: The prediction period for AXP is (n+1 year)

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