Financial market forecasting using a two-step kernel learning method for the support vector regression

In this paper, we propose a two-step kernel learning method based on the support vector regression (SVR) for financial time series forecasting. Given a number of candidate kernels, our method learns a sparse linear combination of these kernels so that the resulting kernel can be used to predict well on future data. The L1-norm regularization approach is used to achieve kernel learning. Since the regularization parameter must be carefully selected, to facilitate parameter tuning, we develop an efficient solution path algorithm that solves the optimal solutions for all possible values of the regularization parameter. Our kernel learning method has been applied to forecast the S&P500 and the NASDAQ market indices and showed promising results.