Risk prediction of investment funds in member countries of the Federation of European and Asian Stock Exchanges - Machine Learning Approaches

The main objective of this study is to compare the predictive accuracy of machine learning models, particularly Random Forest and Artificial Neural Networks, with classical statistical methods (such as Logistic Regression and Linear Discriminant Analysis) in forecasting the risk of Exchange-Traded Funds (ETFs) in member countries of the Federation of European and Asian Stock Exchanges. Furthermore, the study aims to identify the key performance and fundamental variables impacting the risk of these funds. This research adopts a quantitative approach based on secondary data analysis. Data were collected for the years ۲۰۱۵-۲۰۲۳ from the databases of the Federation of European and Asian Stock Exchanges and the Tehran Stock Exchange. After preprocessing, risk prediction models, including Random Forest, Artificial Neural Networks, Logistic Regression, and Linear Discriminant Analysis, were developed and validated for each country using unified evaluation metrics (such as accuracy and AUC). The statistical significance of differences in model performance was tested using non-parametric Mann-Whitney U tests, given the non-normal distribution of accuracy across countries. Sensitivity analysis was then conducted on the two superior machine learning models to determine the impact of independent variables (both performance indicators, such as Jensen's alpha and market return, and fundamental attributes, such as fund size and manager expertise) across different markets. Empirical results indicate that, across most countries and after harmonizing time and geographical dimensions, machine learning models, specifically Random Forest and Artificial Neural Networks, outperform classical statistical approaches in predicting ETF risk, with statistically significantly higher accuracy and AUC values (p<۰.۰۵ in Mann-Whitney U tests). The robustness of these findings is confirmed after controlling for heterogeneity among countries. Sensitivity analyses further reveal that both performance variables (e.g., Jensen's alpha, market return) and fundamental factors (e.g., fund size, manager expertise) have a significant impact on risk outcomes within these models. At the same time, machine learning methods exhibit a stronger ability to identify and quantify the importance of these variables compared to classical methods. The results highlight the practical advantage of adopting machine learning techniques for risk assessment and management in diverse international financial markets. Overall, the findings of this study reveal that employing machine learning models—especially Random Forest and Artificial Neural Networks—significantly improves the accuracy of ETF risk prediction and enables a more comprehensive identification of key risk factors compared to classical statistical approaches. These models demonstrate superior flexibility and the ability to capture complex, multidimensional data patterns, making them highly advantageous tools for financial risk management. The results suggest that integrating advanced machine learning techniques at both regional and international levels can enhance the responsiveness of investment systems to market changes, providing fund managers and investors with a more solid, data-driven basis for decision-making.

کلیدواژه ها:

Machine Learning ، Random forest ، Neural Networks ، risk prediction ، Exchange-traded funds