ABSTRACT

Clustering is an adaptive procedure in which objects are clustered or grouped together, based on the principle of maximizing the intra-class similarity and minimizing the inter-class similarity. Various clustering algorithms have been developed which results to a good performance on datasets for cluster formation. This paper analyze the major clustering algorithms: K-Means, Hierarchical clustering algorithm and reverse K means and compare the performance of these three major clustering algorithms on the aspect of correctly class wise cluster building ability of algorithm. An effective clustering method, HRK (Hierarchical agglomerative and Recursive K-means clustering) is proposed, to predict the short-term stock price movements after the release of financial reports. The proposed method consists of three phases. First, we convert each financial report into a feature vector and use the hierarchical agglomerative clustering method to divide the converted feature vectors into clusters. Second, for each cluster, we recursively apply the K-means clustering method to partition each cluster into sub-clusters so that most feature vectors in each subcluster belong to the same class. Then, for each sub cluster, we choose its centroid as the representative feature vector. Finally, we employ the representative feature vectors to predict the stock price movements. The experimental results show the proposed method outperforms SVM in terms of accuracy and average profits.