Application of artificial intelligence and machine learning in financial forecasting and trading

Artificial Intelligence (AI) and Machine Learning (ML) have been employed in the field of financial forecasting for many years. Existing scientific research has substantiated the effectiveness of AI/ML in the financial market. Currently, approximately 35% of the total capitalization of the US stock market is influenced by quantitative analysis, primarily consisting of AI/ML methodologies and their variants. This paper reviews classical advanced methodologies of AI/ML in financial forecasting and automated trading. Specifically, it focuses on discussing representative methods from three categories: statistical approach (including ARIMA-GARCH), machine learning approach (including SVM and LSTM), and the logistic approach (including the Fuzzy System). In detail, this paper delves into the fundamental aspects of each method and illustrates their effectiveness through existing results from relevant papers. The structure of this paper begins with the introduction of each method, followed by their applications, and a discussion of their pros and cons. Furthermore, this paper offers an outlook on the hotspots and prospects for the development of this research topic.