Developing a Dynamic Feature Selection System (DFSS) for Stock Market Prediction: Application to the Korean Industry Sectors

For several years, a growing interest among numerous researchers and investors in predicting stock price movements has spurred extensive exploration into employing advanced deep learning models. These models aim to develop systems capable of comprehending the stock market’s complex nature. Despite the immense challenge posed by the diverse factors influencing stock price forecasting, there remains a notable lack of research focused on identifying the essential feature set for accurate predictions. In this study, we propose a Dynamic Feature Selection System (DFSS) to predict stock prices across the 10 major industries, as classified by the FnGuide Industry Classification Standard (FICS) in South Korea. We apply 16 feature selection algorithms from filter, wrapper, embedded, and ensemble categories. Subsequently, we adjust the settings of industry-specific index data to evaluate the model’s performance and robustness over time. Our comprehensive results identify the optimal feature sets that significantly impact stock prices within each sector at specific points in time. By analyzing the inclusion ratios and significance of the optimal feature set by category, we gain insights into the proportion of feature classes and their importance. This analysis ensures the interpretability and reliability of our model. The proposed methodology complements existing methods that do not consider changes in the types of variables significantly affecting stock prices over time by dynamically adjusting the input variables used for learning. The primary goal of this study is to enhance active investment strategies by facilitating the creation of diversified portfolios for individual stocks across various sectors, offering robust models and feature sets that consistently demonstrate high performance across industries over time.