Support vector regression with a priori knowledge used in order execution strategies based on VWAP

Authors:
Marcin Orchel
Affiliations:
AGH University of Science and Technology, Kraków, Poland
Venue:
ADMA'11 Proceedings of the 7th international conference on Advanced Data Mining and Applications - Volume Part II
Year:
2011

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Abstract

In this article, we propose a novel application for Support Vector Regression (SVR) for order execution strategies on stock exchanges. We use SVR for predicting volume participation function in execution strategies which try to achieve Volume Weighted Average Price (VWAP) measure of quality of the execution. Moreover, we use SVR with a priori knowledge about stock prices in order to further improve the cost of order execution. The main result is that SVR outperforms tested null hypotheses such as prediction based on average from historical data. SVR with additional knowledge about prices improve the prediction performance and the final execution error. The tests were performed on real stock data from NASDAQ exchange.