Models and Applications in the Decision Sciences: Best Papers from the 2015 Annual Conference

14. Variable Impact in S&P 500 Forecasts: 2004 to 2015

Mary Malliaris, Loyola University Chicago

Abstract

Forecasting the S&P 500 direction has been of interest to investors since its inception. This chapter uses several variables that have demonstrated relationships to the S&P 500 and studies their influence over time. We build C5.0 decision tree models for each of nine years and test them on the following year. The models have good explanatory power during the time period on which they are trained, but due to the fluctuation in variable importance year to year, these fail to explain the out-of-sample data. Owing to economic changes, models may need to be retrained often to remain effective.

Introduction

The stock market is driven by the ...