Modelling A.I. in Economics

HL Options & Futures Prediction (Forecast)

Prediction of stock market movement is extremely difficult due to its high mutable nature. The rapid ups and downs occur in stock market because of impact from foreign commodities like emotional behavior of investors, political, psychological and economical factors. Continuous unsettlement in the stock market is major reason why investors sell out at the wrong time and often fail to gain the benefit. While investing in stock market investors must not forget the risk of reward rule and expose their holdings to greater risks. Although it is not possible predict stock market movement with full accuracy, losses from selling stocks at wrong time and its impacts can be reduce to greater extent using prediction of stock market movement based on analysis of historical data. We evaluate Hargreaves Lansdown prediction models with Modular Neural Network (Social Media Sentiment Analysis) and Stepwise Regression1,2,3,4 and conclude that the HL stock is predictable in the short/long term. According to price forecasts for (n+16 weeks) period: The dominant strategy among neural network is to Sell HL stock.


Keywords: HL, Hargreaves Lansdown, stock forecast, machine learning based prediction, risk rating, buy-sell behaviour, stock analysis, target price analysis, options and futures.

Key Points

  1. Can we predict stock market using machine learning?
  2. What is Markov decision process in reinforcement learning?
  3. What is a prediction confidence?

HL Target Price Prediction Modeling Methodology

The study of financial markets has been addressed in many works during the last years. Different methods have been used in order to capture the non-linear behavior which is characteristic of these complex systems. The development of profitable strategies has been associated with the predictive character of the market movement, and special attention has been devoted to forecast the trends of financial markets. We consider Hargreaves Lansdown Stock Decision Process with Stepwise Regression where A is the set of discrete actions of HL 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(Stepwise Regression)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 (Social Media Sentiment Analysis)) X S(n):→ (n+16 weeks) S = s 1 s 2 s 3

n:Time series to forecast

p:Price signals of HL 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?

HL Stock Forecast (Buy or Sell) for (n+16 weeks)

Sample Set: Neural Network
Stock/Index: HL Hargreaves Lansdown
Time series to forecast n: 31 Oct 2022 for (n+16 weeks)

According to price forecasts for (n+16 weeks) period: The dominant strategy among neural network is to Sell HL 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 Hargreaves Lansdown

  1. An entity's estimate of expected credit losses on loan commitments shall be consistent with its expectations of drawdowns on that loan commitment, ie it shall consider the expected portion of the loan commitment that will be drawn down within 12 months of the reporting date when estimating 12-month expected credit losses, and the expected portion of the loan commitment that will be drawn down over the expected life of the loan commitment when estimating lifetime expected credit losses.
  2. Rebalancing is accounted for as a continuation of the hedging relationship in accordance with paragraphs B6.5.9–B6.5.21. On rebalancing, the hedge ineffectiveness of the hedging relationship is determined and recognised immediately before adjusting the hedging relationship.
  3. The accounting for the time value of options in accordance with paragraph 6.5.15 applies only to the extent that the time value relates to the hedged item (aligned time value). The time value of an option relates to the hedged item if the critical terms of the option (such as the nominal amount, life and underlying) are aligned with the hedged item. Hence, if the critical terms of the option and the hedged item are not fully aligned, an entity shall determine the aligned time value, ie how much of the time value included in the premium (actual time value) relates to the hedged item (and therefore should be treated in accordance with paragraph 6.5.15). An entity determines the aligned time value using the valuation of the option that would have critical terms that perfectly match the hedged item.
  4. For the purposes of measuring expected credit losses, the estimate of expected cash shortfalls shall reflect the cash flows expected from collateral and other credit enhancements that are part of the contractual terms and are not recognised separately by the entity. The estimate of expected cash shortfalls on a collateralised financial instrument reflects the amount and timing of cash flows that are expected from foreclosure on the collateral less the costs of obtaining and selling the collateral, irrespective of whether foreclosure is probable (ie the estimate of expected cash flows considers the probability of a foreclosure and the cash flows that would result from it). Consequently, any cash flows that are expected from the realisation of the collateral beyond the contractual maturity of the contract should be included in this analysis. Any collateral obtained as a result of foreclosure is not recognised as an asset that is separate from the collateralised financial instrument unless it meets the relevant recognition criteria for an asset in this or other Standards.

*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

Hargreaves Lansdown assigned short-term Ba3 & long-term Ba1 forecasted stock rating. We evaluate the prediction models Modular Neural Network (Social Media Sentiment Analysis) with Stepwise Regression1,2,3,4 and conclude that the HL stock is predictable in the short/long term. According to price forecasts for (n+16 weeks) period: The dominant strategy among neural network is to Sell HL stock.

Financial State Forecast for HL Hargreaves Lansdown Stock Options & Futures

Rating Short-Term Long-Term Senior
Outlook*Ba3Ba1
Operational Risk 7679
Market Risk3987
Technical Analysis7155
Fundamental Analysis6249
Risk Unsystematic7990

Prediction Confidence Score

Trust metric by Neural Network: 89 out of 100 with 728 signals.

References

  1. Chernozhukov V, Escanciano JC, Ichimura H, Newey WK. 2016b. Locally robust semiparametric estimation. arXiv:1608.00033 [math.ST]
  2. Clements, M. P. D. F. Hendry (1997), "An empirical study of seasonal unit roots in forecasting," International Journal of Forecasting, 13, 341–355.
  3. Hoerl AE, Kennard RW. 1970. Ridge regression: biased estimation for nonorthogonal problems. Technometrics 12:55–67
  4. J. Peters, S. Vijayakumar, and S. Schaal. Natural actor-critic. In Proceedings of the Sixteenth European Conference on Machine Learning, pages 280–291, 2005.
  5. S. Proper and K. Tumer. Modeling difference rewards for multiagent learning (extended abstract). In Proceedings of the Eleventh International Joint Conference on Autonomous Agents and Multiagent Systems, Valencia, Spain, June 2012
  6. Breusch, T. S. (1978), "Testing for autocorrelation in dynamic linear models," Australian Economic Papers, 17, 334–355.
  7. Mikolov T, Chen K, Corrado GS, Dean J. 2013a. Efficient estimation of word representations in vector space. arXiv:1301.3781 [cs.CL]
Frequently Asked QuestionsQ: What is the prediction methodology for HL stock?
A: HL stock prediction methodology: We evaluate the prediction models Modular Neural Network (Social Media Sentiment Analysis) and Stepwise Regression
Q: Is HL stock a buy or sell?
A: The dominant strategy among neural network is to Sell HL Stock.
Q: Is Hargreaves Lansdown stock a good investment?
A: The consensus rating for Hargreaves Lansdown is Sell and assigned short-term Ba3 & long-term Ba1 forecasted stock rating.
Q: What is the consensus rating of HL stock?
A: The consensus rating for HL is Sell.
Q: What is the prediction period for HL stock?
A: The prediction period for HL is (n+16 weeks)

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