Regime change detection with GBDT and Shapley values
Benhamou, Éric; Ohana, Jean; Saltiel, David; Guez, Beatrice (2021), Regime change detection with GBDT and Shapley values. https://basepub.dauphine.psl.eu/handle/123456789/22203
TypeDocument de travail / Working paper
Titre de la collectionPreprint Lamsade
MétadonnéesAfficher la notice complète
Laboratoire d'analyse et modélisation de systèmes pour l'aide à la décision [LAMSADE]
Résumé (EN)Regime changes detection in financial markets is well known to be hard to explain and interpret. Can an asset manager explain clearly the intuition of his regime changes prediction on equity market ? To answer this question, we consider a gradient boosting decision trees (GBDT) approach to plan regime changes on S&P 500 from a set of 150 technical, fundamental and macroeconomic features. We report an improved accuracy of GBDT over other machine learning (ML) methods on the S&P 500 futures prices. We show that retaining fewer and carefully selected features provides improvements across all ML approaches. Shapley values have recently been introduced from game theory to the field of ML. This approach allows a robust identification of the most important variables planning stock market crises, and of a local explanation of the crisis probability at each date, through a consistent features attribution. We apply this methodology to analyse in detail the March 2020 financial meltdown, for which the model offered a timely out of sample prediction. This analysis unveils in particular the contrarian predictive role of the tech equity sector before and after the crash.
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