On the Economic Significance of Stock Market Prediction and the No Free Lunch Theorem
Open accessAbstract
Forecasting of stock market returns is a challenging research activity that is now expanding with the availability of new data sources, markets, financial instruments, and algorithms. At its core, the predictability of prices still raises important questions. Here, we discuss the economic significance of the prediction accuracy. To develop this question, we collect the daily series prices of almost half of the publicly traded companies around the world over a period of ten years and formulate some trading strategies based on their prediction. Proper visualization of these data together with the use of the No Free Lunch theoretical framework gives some unexpected results that show how the a priori less accurate algorithms and inefficient strategies can offer better results than the a priori best alternatives in some particular subsets of data that have a clear interpretation in terms of economic sectors and regions.
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- Authors
- Bousono-Calzon, C., Bustarviejo-Munoz, J., Aceituno-Aceituno, P., & Escudero-Garzas, J. J.
- Affiliations
- Universidad Carlos III de Madrid (ES)
- Texas A&M University (US)
- Venue
- IEEE Access
- Published
- 2019
- Volume
- 7
- Pages
- 75177-75188
- ISSN
- 2169-3536 (ISSN-L)
- OpenAlex
- W2948842003
- Cited by
- 27
- References
- 52
- Citations by year
- 2026: 1 · 2025: 4 · 2024: 6 · 2023: 5 · 2022: 3 · 2021: 4 · 2020: 4
- FWCI
- 1.97
- Type
- journal article
- Language
- en
- Open access
- gold
- doi.org
- Locations
- IEEE Access (publishedVersion)
- LA Referencia (Red Federada de Repositorios Institucionales de Publicaciones Científicas) (submittedVersion, cc-by-nc-nd)
- DOAJ (DOAJ: Directory of Open Access Journals) (submittedVersion, cc-by-sa)
- e-Archivo (Carlos III University of Madrid) (submittedVersion, cc-by-nc-nd)
- Funders
- Universidad Carlos III de Madrid (2013/00199/002)
- Topics
- Social Sciences › Decision Sciences › Management Science and Operations Research › Stock Market Forecasting Methods
- Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
- Social Sciences › Decision Sciences › Management Science and Operations Research › Forecasting Techniques and Applications
- Keywords
- stock market prediction, no free lunch theorem, stock return predictability, trading strategies, prediction accuracy, daily stock prices, listed companies, economic sectors
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