Accurate stock movement prediction via centroid-based randomness smoothing

How can we identify stable patterns to accurately predict stock price movements amidst severe market noise? Predicting stock price movements is a crucial problem in financial data mining, and has attracted significant attention from researchers and financial institutions. Although there have been several works on learning patterns from quantitative data to predict stock prices, they encounter critical challenges from data uncertainty and model limitations. Data uncertainty arises in financial data because asset prices are determined by the market. Different participants hold distinct valuations for the same asset, which causes prices to fluctuate. This inherent randomness makes it difficult to identify consistent patterns in the data. Additionally, because of this inherent randomness, existing stock movement prediction models that repeatedly stack more recurrent layers end up propagating the randomness forward. It thus becomes more difficult to capture the complex patterns of stock prices. In this work, we propose Craft (Centroid-based Randomness Smoothing Approach for Stock Forecasting with Transformer Architecture), an accurate stock movement prediction model designed to extract clear patterns in stock data and perform refined forecasting through a Transformer-based architecture. By applying an effective randomness smoothing process, Craft uncovers meaningful and consistent patterns that facilitate accurate predictions. We evaluate Craft on fourteen test settings spanning six real-world datasets and three market regimes. Craft achieves the highest prediction accuracy in twelve of these settings and ranks the second in the other two. Craft also improves the annualized Sharpe ratio by up to 1.0 while reducing the relative maximum drawdown by up to 7.0% points over the best competitor.