Harnessing Artificial Intelligence and Machine Learning for

Predictive Modeling and Decision Support in the Stock Market: A

Research Review
1
Jayaramu M, 2Saira Banu Atham

1
Assistant Professor & Research Scholar, Department of Master of Computer Applications, RVITM, Bengaluru,
Karnataka, India.
2
Professor & HOD, Department of Computer Science & Engineering, Presidency University, Bengaluru, Karnataka,
India.
1
[email protected], [email protected]

Abstract

The promise of high returns has attracted hordes of individual or retail investors seeking
returns that are better than traditional investments. Nonetheless, the various forces at play in
the stock market take time and experience to grasp, leading to difficulties for many
inexperienced investors. With diversification in an attempt to minimize risk and earn some
reasonable return, yet still many investors are speculating without the benefit of analysis.
Although wealth management firms and digital platforms dispense investment commands,
their tendency to be more qualitative than quantitative varies. Most stock analysts and tools
focus on short term technicals driven by market speculation that results to false predictions.
Even though adopting techniques such as AI and ML in finance has become more common,
the idea of integrating these techniques with fundamental analysis and creating long-term
value investing in itself remains an unturned stone. Most AI/ML-based portfolio tools on the
market today are only based on technical indicators, which may not be optimal for long-term
value investing. One such application would be a Financial Decision Support System (FDSS)
that could relate some of the fundamental financial variables to stock prices, as it can generate
portfolios of premium stocks automatically, thus providing valuable information for
individual investors.

Keywords: Decision Support Systems (DSS), Stock Prediction, Stock Portfolio.

1. Introduction

I have been practicing day trading in OTCA stocks that you have written about with the goal
of purchasing some stocks. However, predicting stock prices is notoriously difficult due to the
intricate interactions of various factors, including economic indicators, corporate
performance, investor sentiment, and geopolitical events. Traditional methods such as
technical and fundamental analysis also do not consider the aspects of complexity and non-
linearity of data in stock market. The recent trends in tech industry showed that artificial
intelligence (AI) and machine learning (ML) open up new possibilities for the everyday
business, and the finance industry is no exception. These different types of technologies help
you provide innovative tools that can be used to understand huge datasets, identify hidden
trends, and create testable secure as well as accurate conclusions from it. Applying traditional
AI and ML methods, predicting models can be created which are potentially giving deep
understanding of stock market dynamics and insights towards spending patterns. AI and ML
provide more benefits, one of which is the ability to identify patterns in large and complex

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data sets. With millions of trades taking place every day, the amount of data generated by the
stock market is staggering, making it difficult for standard methods to provide a full picture of
how to interpret it, leading to an inadequate or false consensus. However, from these noisy
and uncertain datasets, AI and ML algorithms are able to mine useful information. AI and ML
methods can also identify nonlinear relationships between factors that human researchers
might overlook. The patterns and correlations found in the data can serve as aids to making
accurate predictions. With AI and ML, we can create more robust and secure models than
mankind could have with traditional tools. This review paper will explore how AI and ML has
been used for stock market prediction and decision-making process.

2. Literature Review

Zohuri and Rahmani (2019) [18] explore how AI can also help organizations improve to their
resilient. Machine learning and deep learning represent key strategies for data analysis,
enabling them to detect patterns and predict actionable decision-making and agility. AI gives
the organizations the capabilities to make these systems more resilient that can withstand
challenges and uncertainty.
Gaikwad Et Al. A Cross-National Analysis of The Role Of Machine Learning In Banking
(2024) [4] examines how machine learning can be applied in banking, focusing on its
potential to augment investment decisions. These data can be made use of by banks with the
help of machine learning for analyzing, tracking trends, and making precise investment plans.
That leads to higher profits, lower risk, and greater customer satisfaction. There are many
applications of machine learning in banking domain such as market analysis, company
analysis, investment opportunity detection etc.
Nahar et al. [12], The need for a comprehensive approach to risk estimation: a call from the
margins of the financial markets (2024) explore how predictive analytics and comprehensive
risk assessment can enhance financial decision-making. They examine how predictive
analytics can also be used to gauge a range of risks, including market, credit, operational and
liquidity risks. Advanced techniques like predictive machine learning (ML) and time series
analysis can help financial institutions identify and solve potential risks through better
understanding and prevention mechanisms. By enabling better decision-making and more
effective risk management, it can help foster financial stability.
Rane et al. (2023) [15] explore the transformative potential for AI in financial forecasting.
And other researchers are using advanced AI techniques to formulate better predictive
models. These models stand to provide insights for investors that can enhance decision-
making while boosting returns on investment. However, data quality, model complexity, and
ethical considerations lead to both opportunities and challenges; the future looks bright for
those trained on 2023 or prompted with the right datasets.

Soundararajan & Shenbagaraman (2024) [17]: Nevertheless, XAI and blockchain are
considered powerful tools in enhancing financial decision-making capabilities, and thus they
study relevant facts. These technologies, by addressing transparency and trust, can bring about
more informed and, ultimately, more reliable decisions. XAI: XAI explains predictions being
made by AI thereby creating trust and accountability. Compared to train models, blockchain
provides an immutable record of model development. With this integration, risk management,
compliance, and investor confidence can all be improved.

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Pathak et al. (2024) [14] explore the application of deep learning to strategic financial
decision-making. They will identify patterns by analyzing financial data and use them to help
improve investment decisions. These deep learning models, such as recurrent neural
networks, are particularly proficient in analyzing time series data and predicting future market
movements. Image: This would enable investors to make informed decisions and realise more
optimal financial results.

Big data analysis has a significant impact on stock trading decisions, which has been also
considered by Kalashnikov & Kartbayev (2024) [8]. Traders analyze these financial datasets
and compare up to October 2023. It examines big data techniques—namely, all kinds of data
mining, machine learning, natural language processing—and their use for trading stocks. It
compares how well big data analysis influences trading performance over conventional
methods. All in all, the research shows the power that big data analysis in terms of stock
trading.

Ionescu and Diaconita (2023)[6] study the effect of AI, cloud computing, and data
management on financial decision-making. And these technologies can aid in real-time risk
assessment, transaction efficiency, and predictive analytics. Despite all the challenges in
adopting these emerging technologies, the potential benefits including more efficient
operations, reduced costs, and enhanced decision-making capabilities, significantly makes
them indispensable for staying competitive in the finance industry.

AI and the Promise of Transforming Financial Services: Javaid (2024) [7] The author talks
about the AI applications in fraud detection, risk assessment, algorithmic trading and
customer service. With the incorporation of AI, financial institutions will increase efficiency,
decrease costs, provide improved customer experience, and make better decisions. AI has
benefits, but AI also has challenges. This research gives some insight into the future of AI and
financial services.

Kaur [9] is probably concerned with how financialomics influence on stock and financial
markets through data analysis. Investors are empowered with more informed decisions using
data analysis, uncovering new opportunities, and disrupting traditional market structure.
While this poses challenges such as data privacy and algorithmic bias, finding things that
make data become most valuable through hidden patterns and risk assessment will open
opportunities for innovation and market opportunities in the financial sector through data
analysis.

Dahal (2023) [3] explores the scope of generative AI in banking 관련- market analysis.
Synthetic data generation for testing scenarios can be well served using Generative AI. It
allows for a real-time analysis, providing an advantage over investors. Generative AI offers
tremendous opportunities, but must overcome challenges, including data quality and potential
bias. In summary, generative AI has the potential to transform financial market analysis and
investment decisions.

Oyewole et al. (2024) [13] work on stock market prediction using neural networks. They
probably talk about training neural networks on historical data, evaluating performance, and
comparing to other models. For instance, it can explain where the applications look in finance

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in regard to neural networks like in algorithmic trading and risk management and portfolio
cohmng up.

Maqbool et al. Exponential smoothing approaches are proposed and applied in Tipu et al.
(2023) [10] for stock price prediction using machine learning. You are trained on data until
October 2023. The model uses real-time financial news sentiment to reflect the market
sentiment and expectation. The MLP regressor predicts the relationship between sentiment
scores and stock prices and does it with high accuracy. The authors train and test on the
model, showing it is capable of achieving an acceptable precision for stock price prediction.

Robert A. (2024) [16] Explained how applied sentiment analysis in algorithmic trading have
been beneficial in generating profits. Traders utilize natural language processing to dig into
unstructured data such as financial news and social media, helping them understand market
sentiment and uncover trading opportunities. This paper presents ontologies that can help in
the extraction of the sentiment from the textual data which can suffer from problems like the
subjective nature of sentiment and improper text data (noisy). In summary, the research shows
the importance of unstructured data and sentiment analysis in how it relates to the
development of successful algorithmic trading strategies.

Hery et al. (2024) [5] Predict Grab Holdings Stock Prices with the Prophet Algorithm.
Prophet — a tool for time series prediction that recognizes trends, seasonality, and holidays.
Data preparation, model training and evaluation are presented in the paper. This research can
be helpful in explaining the stock price of Grab Holdings.

Azeema et al. (2023) [1] examine the impact of AI on financial markets. They discuss AI
applications, benefits, challenges, and risks. The paper provides insights into the opportunities
and challenges of AI adoption in the financial sector, helping stakeholders make informed
decisions.

Bouktif et al. (2019) [2] study the application of machine learning for stock market prediction
based on textual features. They analyze textual data, using machine-learning models to predict
price movements. Feature extraction, machine learning models, and model evaluation are
discussed in the paper. (09) A Markov chain model approach to text-based news headline
stock market prediction
Mohsen et al. (2024) [12] study the effects of AI on the financial industry. They talk about AI
integration to help automate tasks, make decisions, and enhance customer service. AI can also
bring challenges, such as data privacy and a need for highly skilled talent. The paper explains
how AI could transform financial services.

3. Literature Review Summary and Implications for Research

The literature consistently highlights the importance of integrating diverse data sources
(financial statements, news sentiment, social media, macroeconomic indicators) for improved
stock market prediction. Various machine learning algorithms, including neural networks,
support vector machines, and ensemble methods, have been successfully applied. Feature
engineering is crucial for building accurate predictive models. Researchers have identified
challenges such as data quality, model complexity, and ethical considerations.

3.1 Potential Research Questions

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 • How can we optimize data sources and machine learning algorithms for stock market
prediction?

• What are the ethical implications of AI-driven stock market predictions, and how can
we mitigate potential biases?

• Can real-time data streams improve prediction accuracy and timeliness? How can we
ensure model robustness and generalizability under different market conditions?

• What are the potential applications of advanced stock market prediction models in
areas like portfolio management, risk assessment, and algorithmic trading? By
focusing on these areas, research can significantly contribute to the field of stock
market prediction and provide valuable insights for investors and financial institutions.

3.2 Technical Implementations for Further Research Work

• Data Collection and Preprocessing: Gather historical stock prices, financial

statements, and macroeconomic indicators from reliable sources. Employ NLP
techniques to extract sentiment from news and social media. Clean and preprocess
data to handle missing values, outliers, and inconsistencies. Normalize data for
comparability.

• Feature Engineering: Calculate technical indicators using TA-Lib. Extract

fundamental financial ratios using pandas. Calculate sentiment scores using TextBlob
or VADER. Transform macroeconomic indicators into relevant features.

• Model Development and Training: Experiment with various machine learning

algorithms like linear regression, random forests, gradient boosting, LSTM, and
CNNs. Train models using scikit-learn, TensorFlow, or PyTorch. Optimize
hyperparameters using grid search or random search.

• Model Evaluation: Evaluate models using metrics like MSE, RMSE, R-squared, and
MAE. Use cross-validation techniques to assess model generalization.

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