A new hybrid method with data-characteristic-driven analysis for artificial intelligence and robotics index return forecasting

Abstract

Forecasting returns for the Artifcial Intelligence and Robotics Index is of great signif‑ cance for fnancial market stability, and the development of the artifcial intelligence industry. To provide investors with a more reliable reference in terms of artifcial intel‑ ligence index investment, this paper selects the NASDAQ CTA Artifcial Intelligence and Robotics (AIRO) Index as the research target, and proposes innovative hybrid methods to forecast returns by considering its multiple structural characteristics. Specifcally, this paper uses the ensemble empirical mode decomposition (EEMD) method and the modifed iterative cumulative sum of squares (ICSS) algorithm to decompose the index returns and identify the structural breakpoints. Furthermore, it combines the least-square support vector machine approach with the particle swarm optimization method (PSO-LSSVM) and the generalized autoregressive conditional heteroskedas‑ ticity (GARCH) type models to construct innovative hybrid forecasting methods. On the one hand, the empirical results indicate that the AIRO index returns have com‑ plex structural characteristics, and present time-varying and nonlinear characteristics with high complexity and mutability; on the other hand, the newly proposed hybrid forecasting method (i.e., the EEMD-PSO-LSSVM-ICSS-GARCH models) which considers these complex structural characteristics, can yield the optimal forecasting performance for the AIRO index returns.