Journal of Mathematical Finance, 2022, 12, 661-682 https://www.scirp.org/journal/jmf ISSN Online: 2162-2442 ISSN Print: 2162-2434 DOI: 10.4236/jmf.2022.124035 Nov. 2, 2022 661 Journal of Mathematical Finance Analytical Predictive Modeling: Impact of Financial and Economic Indicators on Stock Jayanta K. Pokharel * , Erasmus Tetteh-Bator, Chris P. Tsokos Department of Mathematics and Statistics, University of South Florida, Tampa, FL, USA Abstract Stock price prediction is considered as an important task and is of great at- tention as predicting stock prices successfully may lead to attractive profits for investors. Information Technology Sector of S&P 500 is one of the most sought after business segments in S&P 500 and is one of the most attracting areas for many investors due to high percentage annual returns on invest- ment over the years. We used Microsoft Corp. (MSFT), one of the leading companies of the Information Technology Sector Index of S&P 500 informa- tion to build a non-linear real data-driven analytical model which accurately predicts the Weekly Closing Price (WCP) of the stock with predictive accu- racy of 99.3% using six financial, four economic indicators and their two way interactions as the attributable entities that drive the stock returns. We rank the statistically significant indicators and their interactions based on the per- centage of contribution to the WCP of the stock that provides significant in- formation for the beneficiary of the proposed predictive model. We present a unique way for feature selection when multicollinearity presents in the mul- tiple regression dataset using L1-regularization based on supervised machine learning algorithm. Keywords Financial and Economic Indicators, Financial Instruments, Johnson Transformation, Multicollinearity, L1-Regularization, Homoscedasticity, k-Fold Cross Validation 1. Introduction Investors are highly attracted to the stock market due to unlimited profit return possibilities. However, high returns are possible at a cost of high risk, thus, a stock market is called risk-return trade-off [1]. The fluctuations of stock prices How to cite this paper: Pokharel, J.K., Tetteh-Bator, E. and Tsokos, C.P. (2022) Analytical Predictive Modeling: Impact of Financial and Economic Indicators on Stock. Journal of Mathematical Finance, 12, 661-682. https://doi.org/10.4236/jmf.2022.124035 Received: September 1, 2022 Accepted: October 30, 2022 Published: November 2, 2022 Copyright © 2022 by author(s) and Scientific Research Publishing Inc. This work is licensed under the Creative Commons Attribution International License (CC BY 4.0). http://creativecommons.org/licenses/by/4.0/ Open Access