A Hybrid LSTM-XGBoost Framework for Multi-Horizon Stock Return Prediction Across Diversified Equity Portfolios

arXiv:2609.13125v1 Announce Type: new Abstract: Accurate prediction of equity returns remains a major challenge in computational finance due to the non-stationary, nonlinear, and low signal-to-noise ratio nature of financial time series. This paper proposes a hybrid two-stage architecture that combines a long short-term memory (LSTM) network with an XGBoost gradient-boosted regressor for multi-horizon stock return prediction across a diversified panel of 14 U.S. equities spanning six industry sectors. The LSTM component, comprising two stacked layers with 64 hidden units, processes 60-day sliding windows of five sequential market features to produce 64-dimensional temporal embeddings that encode learned sequential market dynamics. These embeddings are concatenated with 14 hand-crafted technical indicators to form a 78-dimensional hybrid feature vector, which is subsequently passed to an XGBoost regressor tuned via 3-fold cross-validation grid search. The framework is trained on a multi-stock pooled corpus using strict chronological splits and per-stock MinMaxScaling to prevent look-ahead bias, and evaluated across four prediction horizons of 30, 90, 252, and 365 trading days. Experimental results demonstrate that the hybrid model achieves a test RMSE of 0.0949 on the 30-day horizon, roughly one-third that of the standalone LSTM baseline, while marginally matching or surpassing the XGBoost-Only baseline across the majority of stocks. Directional accuracy rises with horizon length, reaching 97.6% at 365 days; we show, however, that this largely tracks the high base rate of positive long-horizon returns in the sample, and we therefore benchmark directional accuracy against a naive always-positive predictor and treat the above-base-rate gap at short horizons as the more informative signal. A composite investment scoring framework derived from multi-horizon predictions is further proposed to support portfolio ranking and decision support.

Abstract:Accurate prediction of equity returns remains a major challenge in computational finance due to the non-stationary, nonlinear, and low signal-to-noise ratio nature of financial time series. This paper proposes a hybrid two-stage architecture that combines a long short-term memory (LSTM) network with an XGBoost gradient-boosted regressor for multi-horizon stock return prediction across a diversified panel of 14 U.S. equities spanning six industry sectors. The LSTM component, comprising two stacked layers with 64 hidden units, processes 60-day sliding windows of five sequential market features to produce 64-dimensional temporal embeddings that encode learned sequential market dynamics. These embeddings are concatenated with 14 hand-crafted technical indicators to form a 78-dimensional hybrid feature vector, which is subsequently passed to an XGBoost regressor tuned via 3-fold cross-validation grid search. The framework is trained on a multi-stock pooled corpus using strict chronological splits and per-stock MinMaxScaling to prevent look-ahead bias, and evaluated across four prediction horizons of 30, 90, 252, and 365 trading days. Experimental results demonstrate that the hybrid model achieves a test RMSE of 0.0949 on the 30-day horizon, roughly one-third that of the standalone LSTM baseline, while marginally matching or surpassing the XGBoost-Only baseline across the majority of stocks. Directional accuracy rises with horizon length, reaching 97.6% at 365 days; we show, however, that this largely tracks the high base rate of positive long-horizon returns in the sample, and we therefore benchmark directional accuracy against a naive always-positive predictor and treat the above-base-rate gap at short horizons as the more informative signal. A composite investment scoring framework derived from multi-horizon predictions is further proposed to support portfolio ranking and decision support.

Artificial Intelligence (cs.AI)

arXiv:2609.13125 [cs.AI]

(or arXiv:2609.13125v1 [cs.AI] for this version)

https://doi.org/10.48550/arXiv.2609.13125 Focus to learn more arXiv-issued DOI via DataCite (pending registration)

arXivLabs is a framework that allows collaborators to develop and share new arXiv features directly on our website.

Both individuals and organizations that work with arXivLabs have embraced and accepted our values of openness, community, excellence, and user data privacy. arXiv is committed to these values and only works with partners that adhere to them.

Have an idea for a project that will add value for arXiv's community? Learn more about arXivLabs.

În afara temei aiqbench

A Hybrid LSTM-XGBoost Framework for Multi-Horizon Stock Return Prediction Across Diversified Equity Portfolios

Subiecte conexe