A multi-objective portfolio optimization model incorporating sentiment analysis of quarterly reports and LSTM-based...

Sentiment analysis (SA) of natural language text has become as a powerful instrument for enhancing financial market predictions. Quarterly reports from companies, in particular, offer a rich source of data for sentiment analysis, providing key insights into a company's performance, strategic actions, and future prospects. These reports can significantly influence investor decisions regarding asset investments. Notwithstanding the potential, prior research has not investigated sentiment analysis concerning these resources in portfolio optimization. To fill this void, we propose an innovative three-stage approach to constructing stock portfolios. In the first stage, we perform sentiment analysis on companies' quarterly reports using the FinBERT model to assess the sentiment surrounding each company. In the second stage, we utilize a Long-Short-Term Memory (LSTM) model for forecasting future prices, which enables the calculation of expected returns and the covariance matrix. In final stage, we present a three-objective portfolio optimization model that incorporates risk, return, and sentiment-derived trend features. We solve this model using the Weighted Goal Programming (WGP) method. Our results indicate that the proposed model effectively supports portfolio optimization. Moreover, the model is implemented using data from companies that are part of the Dow Jones Industrial Average (DJIA), and findings demonstrate high accuracy, confirming the practical potential of the proposed approach.