The effectiveness of the combined use of VIX and Support Vector Machines on the prediction of S&P 500

The aim of this research is to analyse the effectiveness of the Chicago Board Options Exchange Market Volatility Index (VIX) when used with Support Vector Machines (SVMs) in order to forecast the weekly change in the S&P 500 index. The data provided cover the period between 3 January 2000 and 30...

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Bibliographic Details
Published in:Neural computing & applications 2014-08, Vol.25 (2), p.321-332
Main Authors: Rosillo, Rafael, Giner, Javier, de la Fuente, David
Format: Article
Language:English
Subjects:
Applied sciences
Artificial Intelligence
Computational Biology/Bioinformatics
Computational Science and Engineering
Computer Science
Computer science
control theory
systems
Data Mining and Knowledge Discovery
Data processing. List processing. Character string processing
Exact sciences and technology
Image Processing and Computer Vision
Memory organisation. Data processing
Operational research and scientific management
Operational research. Management science
Original Article
Portfolio theory
Probability and Statistics in Computer Science
Software
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Summary:The aim of this research is to analyse the effectiveness of the Chicago Board Options Exchange Market Volatility Index (VIX) when used with Support Vector Machines (SVMs) in order to forecast the weekly change in the S&P 500 index. The data provided cover the period between 3 January 2000 and 30 December 2011. A trading simulation is implemented so that statistical efficiency is complemented by measures of economic performance. The inputs retained are traditional technical trading rules commonly used in the analysis of equity markets such as Relative Strength Index, Moving Average Convergence Divergence, VIX and the daily return of the S&P 500. The SVM identifies the best situations in which to buy or sell in the market. The two outputs of the SVM are the movement of the market and the degree of set membership. The obtained results show that SVM using VIX produce better results than the Buy and Hold strategy or SVM without VIX. The influence of VIX in the trading system is particularly significant when bearish periods appear. Moreover, the SVM allows the reduction in the Maximum Drawdown and the annualised standard deviation.
ISSN:0941-0643
1433-3058
DOI:10.1007/s00521-013-1487-7