Risk-Aware Financial Forecasting Enhanced by Machine Learning and Intuitionistic Fuzzy Multi-Criteria Decision-Making

Abstract

In the face of increasing financial uncertainty and market complexity, this study presents a novel risk-aware financial forecasting framework that integrates advanced machine learning techniques with intuitionistic fuzzy multi-criteria decision-making (MCDM). Tailored to the BIST 100 index and validated through a case study of a major defense company in Türkiye, the framework fuses structured financial data, unstructured text data, and macroeconomic indicators to enhance predictive accuracy and robustness. It incorporates a hybrid suite of models, including extreme gradient boosting (XGBoost), long short-term memory (LSTM) network, graph neural network (GNN), to deliver probabilistic forecasts with quantified uncertainty. The empirical results demonstrate high forecasting accuracy, with a net profit mean absolute percentage error (MAPE) of 3.03% and narrow 95% confidence intervals for key financial indicators. The risk-aware analysis indicates a favorable risk-return profile, with a Sharpe ratio of 1.25 and a higher Sortino ratio of 1.80, suggesting relatively low downside volatility and robust performance under market fluctuations. Sensitivity analysis shows that the key financial indicator predictions are highly sensitive to variations of inflation, interest rates, sentiment, and exchange rates. Additionally, using an intuitionistic fuzzy MCDM approach, combining entropy weighting, evaluation based on distance from the average solution (EDAS), and the measurement of alternatives and ranking according to compromise solution (MARCOS) methods, the tabular data learning network (TabNet) outperforms the other models and is identified as the most suitable candidate for deployment. Overall, the findings of this work highlight the importance of integrating advanced machine learning, risk quantification, and fuzzy MCDM methodologies in financial forecasting, particularly in emerging markets.