Novel design of a sentiment based stock market index forecasting system

This article proposes a novel idea for creating a sentiment-based stock market index forecasting model by amalgamating price and sentiment data hidden in the price pattern itself. The state-of-the-art methodologies used in forecasting stock markets involve gathering sentiment data from external sources like tweets, but the proposed model is unique in the sense it extracts the sentiment information from the price itself, making it more reliable and easier to test and implement. In the proposed system the simple daily time series is converted to an information enriched fuzzy linguistic time series with a unique approach of incorporating information about the sentiment behind the Open High Low Close (OHLC) price formation that took place at every instance of the time series. A unique approach is followed while modeling the information retrieval (IR) system which converts a simple IR system it into a forecasting system. A number of experiments were conducted using the proposed model on Nifty-50 index values (5 years) and it was found that the Root Mean Squared Error (RMSE) value came around 1.03 and RMSE% came around 1.72% which is quite small compared to number of observations and hence this gives a strong indication that the proposed system has the capability to perform good quality of forecasts. The model is simple and easy to implement with very nominal memory requirements, compared to other type of models. © The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature 2024.