• Asia pacific journal of information systems
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• v.24 no.2
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• pp.233-253
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• 2014

Can the stock market really be predicted? Stock market prediction has attracted much attention from many fields including business, economics, statistics, and mathematics. Early research on stock market prediction was based on random walk theory (RWT) and the efficient market hypothesis (EMH). According to the EMH, stock market are largely driven by new information rather than present and past prices. Since it is unpredictable, stock market will follow a random walk. Even though these theories, Schumaker [2010] asserted that people keep trying to predict the stock market by using artificial intelligence, statistical estimates, and mathematical models. Mathematical approaches include Percolation Methods, Log-Periodic Oscillations and Wavelet Transforms to model future prices. Examples of artificial intelligence approaches that deals with optimization and machine learning are Genetic Algorithms, Support Vector Machines (SVM) and Neural Networks. Statistical approaches typically predicts the future by using past stock market data. Recently, financial engineers have started to predict the stock prices movement pattern by using the SNS data. SNS is the place where peoples opinions and ideas are freely flow and affect others' beliefs on certain things. Through word-of-mouth in SNS, people share product usage experiences, subjective feelings, and commonly accompanying sentiment or mood with others. An increasing number of empirical analyses of sentiment and mood are based on textual collections of public user generated data on the web. The Opinion mining is one domain of the data mining fields extracting public opinions exposed in SNS by utilizing data mining. There have been many studies on the issues of opinion mining from Web sources such as product reviews, forum posts and blogs. In relation to this literatures, we are trying to understand the effects of SNS exposures of firms on stock prices in Korea. Similarly to Bollen et al. [2011], we empirically analyze the impact of SNS exposures on stock return rates. We use Social Metrics by Daum Soft, an SNS big data analysis company in Korea. Social Metrics provides trends and public opinions in Twitter and blogs by using natural language process and analysis tools. It collects the sentences circulated in the Twitter in real time, and breaks down these sentences into the word units and then extracts keywords. In this study, we classify firms' exposures in SNS into two groups: positive and negative. To test the correlation and causation relationship between SNS exposures and stock price returns, we first collect 252 firms' stock prices and KRX100 index in the Korea Stock Exchange (KRX) from May 25, 2012 to September 1, 2012. We also gather the public attitudes (positive, negative) about these firms from Social Metrics over the same period of time. We conduct regression analysis between stock prices and the number of SNS exposures. Having checked the correlation between the two variables, we perform Granger causality test to see the causation direction between the two variables. The research result is that the number of total SNS exposures is positively related with stock market returns. The number of positive mentions of has also positive relationship with stock market returns. Contrarily, the number of negative mentions has negative relationship with stock market returns, but this relationship is statistically not significant. This means that the impact of positive mentions is statistically bigger than the impact of negative mentions. We also investigate whether the impacts are moderated by industry type and firm's size. We find that the SNS exposures impacts are bigger for IT firms than for non-IT firms, and bigger for small sized firms than for large sized firms. The results of Granger causality test shows change of stock price return is caused by SNS exposures, while the causation of the other way round is not significant. Therefore the correlation relationship between SNS exposures and stock prices has uni-direction causality. The more a firm is exposed in SNS, the more is the stock price likely to increase, while stock price changes may not cause more SNS mentions.

• Journal of Intelligence and Information Systems
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• v.25 no.3
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• pp.239-251
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• 2019

Statistical methods such as moving averages, Kalman filtering, exponential smoothing, regression analysis, and ARIMA (autoregressive integrated moving average) have been used for stock market predictions. However, these statistical methods have not produced superior performances. In recent years, machine learning techniques have been widely used in stock market predictions, including artificial neural network, SVM, and genetic algorithm. In particular, a case-based reasoning method, known as k-nearest neighbor is also widely used for stock price prediction. Case based reasoning retrieves several similar cases from previous cases when a new problem occurs, and combines the class labels of similar cases to create a classification for the new problem. However, case based reasoning has some problems. First, case based reasoning has a tendency to search for a fixed number of neighbors in the observation space and always selects the same number of neighbors rather than the best similar neighbors for the target case. So, case based reasoning may have to take into account more cases even when there are fewer cases applicable depending on the subject. Second, case based reasoning may select neighbors that are far away from the target case. Thus, case based reasoning does not guarantee an optimal pseudo-neighborhood for various target cases, and the predictability can be degraded due to a deviation from the desired similar neighbor. This paper examines how the size of learning data affects stock price predictability through k-nearest neighbor and compares the predictability of k-nearest neighbor with the random walk model according to the size of the learning data and the number of neighbors. In this study, Samsung electronics stock prices were predicted by dividing the learning dataset into two types. For the prediction of next day's closing price, we used four variables: opening value, daily high, daily low, and daily close. In the first experiment, data from January 1, 2000 to December 31, 2017 were used for the learning process. In the second experiment, data from January 1, 2015 to December 31, 2017 were used for the learning process. The test data is from January 1, 2018 to August 31, 2018 for both experiments. We compared the performance of k-NN with the random walk model using the two learning dataset. The mean absolute percentage error (MAPE) was 1.3497 for the random walk model and 1.3570 for the k-NN for the first experiment when the learning data was small. However, the mean absolute percentage error (MAPE) for the random walk model was 1.3497 and the k-NN was 1.2928 for the second experiment when the learning data was large. These results show that the prediction power when more learning data are used is higher than when less learning data are used. Also, this paper shows that k-NN generally produces a better predictive power than random walk model for larger learning datasets and does not when the learning dataset is relatively small. Future studies need to consider macroeconomic variables related to stock price forecasting including opening price, low price, high price, and closing price. Also, to produce better results, it is recommended that the k-nearest neighbor needs to find nearest neighbors using the second step filtering method considering fundamental economic variables as well as a sufficient amount of learning data.

• Journal of Intelligence and Information Systems
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• v.23 no.2
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• pp.107-122
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• 2017

Volatility in the stock market returns is a measure of investment risk. It plays a central role in portfolio optimization, asset pricing and risk management as well as most theoretical financial models. Engle(1982) presented a pioneering paper on the stock market volatility that explains the time-variant characteristics embedded in the stock market return volatility. His model, Autoregressive Conditional Heteroscedasticity (ARCH), was generalized by Bollerslev(1986) as GARCH models. Empirical studies have shown that GARCH models describes well the fat-tailed return distributions and volatility clustering phenomenon appearing in stock prices. The parameters of the GARCH models are generally estimated by the maximum likelihood estimation (MLE) based on the standard normal density. But, since 1987 Black Monday, the stock market prices have become very complex and shown a lot of noisy terms. Recent studies start to apply artificial intelligent approach in estimating the GARCH parameters as a substitute for the MLE. The paper presents SVR-based GARCH process and compares with MLE-based GARCH process to estimate the parameters of GARCH models which are known to well forecast stock market volatility. Kernel functions used in SVR estimation process are linear, polynomial and radial. We analyzed the suggested models with KOSPI 200 Index. This index is constituted by 200 blue chip stocks listed in the Korea Exchange. We sampled KOSPI 200 daily closing values from 2010 to 2015. Sample observations are 1487 days. We used 1187 days to train the suggested GARCH models and the remaining 300 days were used as testing data. First, symmetric and asymmetric GARCH models are estimated by MLE. We forecasted KOSPI 200 Index return volatility and the statistical metric MSE shows better results for the asymmetric GARCH models such as E-GARCH or GJR-GARCH. This is consistent with the documented non-normal return distribution characteristics with fat-tail and leptokurtosis. Compared with MLE estimation process, SVR-based GARCH models outperform the MLE methodology in KOSPI 200 Index return volatility forecasting. Polynomial kernel function shows exceptionally lower forecasting accuracy. We suggested Intelligent Volatility Trading System (IVTS) that utilizes the forecasted volatility results. IVTS entry rules are as follows. If forecasted tomorrow volatility will increase then buy volatility today. If forecasted tomorrow volatility will decrease then sell volatility today. If forecasted volatility direction does not change we hold the existing buy or sell positions. IVTS is assumed to buy and sell historical volatility values. This is somewhat unreal because we cannot trade historical volatility values themselves. But our simulation results are meaningful since the Korea Exchange introduced volatility futures contract that traders can trade since November 2014. The trading systems with SVR-based GARCH models show higher returns than MLE-based GARCH in the testing period. And trading profitable percentages of MLE-based GARCH IVTS models range from 47.5% to 50.0%, trading profitable percentages of SVR-based GARCH IVTS models range from 51.8% to 59.7%. MLE-based symmetric S-GARCH shows +150.2% return and SVR-based symmetric S-GARCH shows +526.4% return. MLE-based asymmetric E-GARCH shows -72% return and SVR-based asymmetric E-GARCH shows +245.6% return. MLE-based asymmetric GJR-GARCH shows -98.7% return and SVR-based asymmetric GJR-GARCH shows +126.3% return. Linear kernel function shows higher trading returns than radial kernel function. Best performance of SVR-based IVTS is +526.4% and that of MLE-based IVTS is +150.2%. SVR-based GARCH IVTS shows higher trading frequency. This study has some limitations. Our models are solely based on SVR. Other artificial intelligence models are needed to search for better performance. We do not consider costs incurred in the trading process including brokerage commissions and slippage costs. IVTS trading performance is unreal since we use historical volatility values as trading objects. The exact forecasting of stock market volatility is essential in the real trading as well as asset pricing models. Further studies on other machine learning-based GARCH models can give better information for the stock market investors.

• Journal of Intelligence and Information Systems
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• v.23 no.1
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• pp.47-67
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• 2017

Steel plate faults is one of important factors to affect the quality and price of the steel plates. So far many steelmakers generally have used visual inspection method that could be based on an inspector's intuition or experience. Specifically, the inspector checks the steel plate faults by looking the surface of the steel plates. However, the accuracy of this method is critically low that it can cause errors above 30% in judgment. Therefore, accurate steel plate faults diagnosis system has been continuously required in the industry. In order to meet the needs, this study proposed a new steel plate faults diagnosis system using Simultaneous MTS (S-MTS), which is an advanced Mahalanobis Taguchi System (MTS) algorithm, to classify various surface defects of the steel plates. MTS has generally been used to solve binary classification problems in various fields, but MTS was not used for multiclass classification due to its low accuracy. The reason is that only one mahalanobis space is established in the MTS. In contrast, S-MTS is suitable for multi-class classification. That is, S-MTS establishes individual mahalanobis space for each class. 'Simultaneous' implies comparing mahalanobis distances at the same time. The proposed steel plate faults diagnosis system was developed in four main stages. In the first stage, after various reference groups and related variables are defined, data of the steel plate faults is collected and used to establish the individual mahalanobis space per the reference groups and construct the full measurement scale. In the second stage, the mahalanobis distances of test groups is calculated based on the established mahalanobis spaces of the reference groups. Then, appropriateness of the spaces is verified by examining the separability of the mahalanobis diatances. In the third stage, orthogonal arrays and Signal-to-Noise (SN) ratio of dynamic type are applied for variable optimization. Also, Overall SN ratio gain is derived from the SN ratio and SN ratio gain. If the derived overall SN ratio gain is negative, it means that the variable should be removed. However, the variable with the positive gain may be considered as worth keeping. Finally, in the fourth stage, the measurement scale that is composed of selected useful variables is reconstructed. Next, an experimental test should be implemented to verify the ability of multi-class classification and thus the accuracy of the classification is acquired. If the accuracy is acceptable, this diagnosis system can be used for future applications. Also, this study compared the accuracy of the proposed steel plate faults diagnosis system with that of other popular classification algorithms including Decision Tree, Multi Perception Neural Network (MLPNN), Logistic Regression (LR), Support Vector Machine (SVM), Tree Bagger Random Forest, Grid Search (GS), Genetic Algorithm (GA) and Particle Swarm Optimization (PSO). The steel plates faults dataset used in the study is taken from the University of California at Irvine (UCI) machine learning repository. As a result, the proposed steel plate faults diagnosis system based on S-MTS shows 90.79% of classification accuracy. The accuracy of the proposed diagnosis system is 6-27% higher than MLPNN, LR, GS, GA and PSO. Based on the fact that the accuracy of commercial systems is only about 75-80%, it means that the proposed system has enough classification performance to be applied in the industry. In addition, the proposed system can reduce the number of measurement sensors that are installed in the fields because of variable optimization process. These results show that the proposed system not only can have a good ability on the steel plate faults diagnosis but also reduce operation and maintenance cost. For our future work, it will be applied in the fields to validate actual effectiveness of the proposed system and plan to improve the accuracy based on the results.

• Journal of Intelligence and Information Systems
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• v.26 no.3
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• pp.149-169
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• 2020

"The Urban Renewal New Deal project", one of the government's major national projects, is about developing underdeveloped areas by investing 50 trillion won in 100 locations on the first year and 500 over the next four years. This project is drawing keen attention from the media and local governments. However, the project model which fails to reflect the original characteristics of the area as it divides project area into five categories: "Our Neighborhood Restoration, Housing Maintenance Support Type, General Neighborhood Type, Central Urban Type, and Economic Base Type," According to keywords for successful urban regeneration in Korea, "resident participation," "regional specialization," "ministerial cooperation" and "public-private cooperation", when local governments propose urban regeneration projects to the government, they can see that it is most important to accurately understand the characteristics of the city and push ahead with the projects in a way that suits the characteristics of the city with the help of local residents and private companies. In addition, considering the gentrification problem, which is one of the side effects of urban regeneration projects, it is important to select and implement urban regeneration types suitable for the characteristics of the area. In order to supplement the limitations of the 'Urban Regeneration New Deal Project' methodology, this study aims to propose a system that recommends urban regeneration types suitable for urban regeneration sites by utilizing various machine learning algorithms, referring to the urban regeneration types of the '2025 Seoul Metropolitan Government Urban Regeneration Strategy Plan' promoted based on regional characteristics. There are four types of urban regeneration in Seoul: "Low-use Low-Level Development, Abandonment, Deteriorated Housing, and Specialization of Historical and Cultural Resources" (Shon and Park, 2017). In order to identify regional characteristics, approximately 100,000 text data were collected for 22 regions where the project was carried out for a total of four types of urban regeneration. Using the collected data, we drew key keywords for each region according to the type of urban regeneration and conducted topic modeling to explore whether there were differences between types. As a result, it was confirmed that a number of topics related to real estate and economy appeared in old residential areas, and in the case of declining and underdeveloped areas, topics reflecting the characteristics of areas where industrial activities were active in the past appeared. In the case of the historical and cultural resource area, since it is an area that contains traces of the past, many keywords related to the government appeared. Therefore, it was possible to confirm political topics and cultural topics resulting from various events. Finally, in the case of low-use and under-developed areas, many topics on real estate and accessibility are emerging, so accessibility is good. It mainly had the characteristics of a region where development is planned or is likely to be developed. Furthermore, a model was implemented that proposes urban regeneration types tailored to regional characteristics for regions other than Seoul. Machine learning technology was used to implement the model, and training data and test data were randomly extracted at an 8:2 ratio and used. In order to compare the performance between various models, the input variables are set in two ways: Count Vector and TF-IDF Vector, and as Classifier, there are 5 types of SVM (Support Vector Machine), Decision Tree, Random Forest, Logistic Regression, and Gradient Boosting. By applying it, performance comparison for a total of 10 models was conducted. The model with the highest performance was the Gradient Boosting method using TF-IDF Vector input data, and the accuracy was 97%. Therefore, the recommendation system proposed in this study is expected to recommend urban regeneration types based on the regional characteristics of new business sites in the process of carrying out urban regeneration projects."