Improving Forecasting Accuracy of Stock Market Indices Utilizing Attention-Based LSTM Networks with a Novel Asymmetric Loss Function

This study presents a novel approach to financial time series forecasting by introducing asymmetric loss functions. This is specifically designed to enhance directional accuracy across major stock indices (S&P 500, DJI, and NASDAQ Composite) over a 33-year time period. We integrate these loss functions into an attention-based Long Short-Term Memory (LSTM) framework. The proposed loss functions are evaluated against traditional metrics such as Mean Squared Error (MSE), Mean Absolute Error (MAE), and other recent research-based losses. Our approach consistently achieves superior test-time directional accuracy, with gains of 3.4–6.1 percentage points over MSE/MAE and 2.0–4.5 percentage points over prior asymmetric losses, which are either non-differentiable or require extensive hyperparameter tuning. Furthermore, proposed models also achieve an F1 score of up to 0.74, compared to 0.63–0.68 for existing methods, and maintain competitive MAE values within 0.01–0.03 of the baseline. The optimized asymmetric loss functions improve specificity to above 0.62 and ensure a better balance between precision and recall. These results underscore the potential of directionally aware loss design to enhance AI-driven financial forecasting systems.

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Publication Details

Journal
AI
Published
2025-10-17
DOI
https://doi.org/10.3390/ai6100268
Citations
1
Primary Topic
Stock Market Forecasting Methods
Type
article
Field-Weighted Citation Impact
2.11
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article

Improving Forecasting Accuracy of Stock Market Indices Utilizing Attention-Based LSTM Networks with a Novel Asymmetric Loss Function

Varun Sarda, Amit Kumar Goyal, Rajesh Mahadeva, Shlok Sagar Rajpal
1 citations
AI
Stock Market Forecasting Methods
2.11
article

Improving Forecasting Accuracy of Stock Market Indices Utilizing Attention-Based LSTM Networks with a Novel Asymmetric Loss Function

Varun Sarda, Amit Kumar Goyal, Rajesh Mahadeva, Shlok Sagar Rajpal
article en
1 citations

Abstract

This study presents a novel approach to financial time series forecasting by introducing asymmetric loss functions. This is specifically designed to enhance directional accuracy across major stock indices (S&P 500, DJI, and NASDAQ Composite) over a 33-year time period. We integrate these loss functions into an attention-based Long Short-Term Memory (LSTM) framework. The proposed loss functions are evaluated against traditional metrics such as Mean Squared Error (MSE), Mean Absolute Error (MAE), and other recent research-based losses. Our approach consistently achieves superior test-time directional accuracy, with gains of 3.4–6.1 percentage points over MSE/MAE and 2.0–4.5 percentage points over prior asymmetric losses, which are either non-differentiable or require extensive hyperparameter tuning. Furthermore, proposed models also achieve an F1 score of up to 0.74, compared to 0.63–0.68 for existing methods, and maintain competitive MAE values within 0.01–0.03 of the baseline. The optimized asymmetric loss functions improve specificity to above 0.62 and ensure a better balance between precision and recall. These results underscore the potential of directionally aware loss design to enhance AI-driven financial forecasting systems.

AIVol. 6(10)
Manipal Academy of Higher Education (IN)
Openalex Percentile: Top 10%
Stock Market Forecasting Methods
2.11
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