Cluster-Based Mutual Fund Classification and Price Prediction Using Machine Learning for Robo-Advisors

Abstract

The rise of FinTech has been meteoric in China. Investing in mutual funds through robo-advisor has become a new innovation in the wealth management industry. In recent years, machine learning, especially deep learning, has been widely used in the financial industry to solve financial problems. This paper aims to improve the accuracy and timeliness of fund classification through the use of machine learning algorithms, that is, Gaussian hybrid clustering algorithm. At the same time, a deep learning-based prediction model is implemented to predict the price movement of fund classes based on the classification results. Fund classification carried out using 3,625 Chinese mutual funds shows both accurate and efficient results. The cluster-based spatiotemporal ensemble deep learning module shows better prediction accuracy than baseline models with only access to limited data samples. The main contribution of this paper is to provide a new approach to fund classification and price movement prediction to support the decision-making of the next generation robo-advisor assisted by artificial intelligence.