A case study on financial ratios via cross-graph quasi-bicliques

Abstract

Stocks with similar financial ratio values across years have similar price movements. We investigate this hypothesis by clustering groups of stocks that exhibit homogeneous financial ratio values across years, and then study their price movements. We propose using cross-graph quasi-biclique (CGQB) subgraphs to cluster stocks, as they can define the three dimensional (3D) subspaces of financial ratios that the stocks are homogeneous in across the years, and they can also handle missing values that are rampant in the stock data. Furthermore, investors can easily analyze these 3D subspaces to explore the relations between the stocks and financial ratios. We develop a novel algorithm, CGQBminer, which mines the complete set of CGQB subgraphs from the stock data. Through experimental analysis, we show that the hypothesis is valid. Furthermore, we demonstrate that having an investment strategy which uses groups of stocks mined by CGQB subgraphs have higher returns than one that does not. We also conducted an extensive performance analysis on CGQBminer, and show that it is efficient across different 3D datasets and parameter settings. © 2010 Elsevier Inc. All rights reserved.