Interpretable machine learning model for predicting activist investment targets

This research presents a predictive model to identify potential targets of activist investment funds—entities that acquire significant corporate stakes to influence strategic and operational decisions, ultimately enhancing shareholder value. Predicting such targets is crucial for companies aiming to mitigate intervention risks, activist funds seeking optimal investments, and investors looking to leverage potential stock price gains. Using data from the Russell 3000 index from 2016 to 2022, we evaluated 123 model configurations incorporating diverse imputation, oversampling, and machine learning techniques. Our best model achieved an AUC-ROC of 0.782, demonstrating its capability to effectively predict activist fund targets. To enhance interpretability, we employed the Shapley value method to identify key factors influencing a company’s likelihood of being targeted, highlighting the dynamic mechanisms underlying activist fund target selection. These insights offer a powerful tool for proactive corporate governance and informed investment strategies, advancing understanding of the mechanisms driving activist investment decisions.

Authors

Institutions

Publication Details

Journal
The Journal of Finance and Data Science
Published
2024-11-19
DOI
https://doi.org/10.1016/j.jfds.2024.100146
Citations
1
Primary Topic
Stock Market Forecasting Methods
Type
article
Field-Weighted Citation Impact
0.49
Controls
|||
ALL TIME
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
article

Interpretable machine learning model for predicting activist investment targets

Talal Rahwan, Minwu Kim, Sidahmed Benabderrahman
1 citations
The Journal of Finance and Data Science
Stock Market Forecasting Methods
0.49
article

Interpretable machine learning model for predicting activist investment targets

Talal Rahwan, Minwu Kim, Sidahmed Benabderrahman
article en
1 citations

Abstract

This research presents a predictive model to identify potential targets of activist investment funds—entities that acquire significant corporate stakes to influence strategic and operational decisions, ultimately enhancing shareholder value. Predicting such targets is crucial for companies aiming to mitigate intervention risks, activist funds seeking optimal investments, and investors looking to leverage potential stock price gains. Using data from the Russell 3000 index from 2016 to 2022, we evaluated 123 model configurations incorporating diverse imputation, oversampling, and machine learning techniques. Our best model achieved an AUC-ROC of 0.782, demonstrating its capability to effectively predict activist fund targets. To enhance interpretability, we employed the Shapley value method to identify key factors influencing a company’s likelihood of being targeted, highlighting the dynamic mechanisms underlying activist fund target selection. These insights offer a powerful tool for proactive corporate governance and informed investment strategies, advancing understanding of the mechanisms driving activist investment decisions.

The Journal of Finance and Data ScienceVol. 10
New York University Abu Dhabi (AE)
Decent work and economic growth
Openalex Percentile: Top 29%
Stock Market Forecasting Methods
0.49
AI Navigator

Ask Laika to Summarize, Analyze, and Connect papers live on the map.

Summarize Papers & Methodologies

Extract key findings, datasets, and comparative methods across publications.

Benchmark Rankings & Visual Analytics

Rank top research institutions, authors, funders, topics, and journals by Field-Weighted Citation Impact (FWCI) and paper volume with instant charts.

Connect Distant Disciplines

Bridge topological clusters on the map to find hidden collaborative intersections.