Causal Inference in Finance: An Expertise-Driven Model for Instrument Variables Identification and Interpretation
Instrumental Variable (IV) provides a source of treatment randomization that is conditionally independent of the outcomes, responding to the challenges of counterfactual and confounding biases. In finance, IV construction typically relies on pre-designed synthetic IVs, with effectiveness measured by specific algorithms. This classic paradigm cannot be generalized to address broader issues that require more and specific IVs. Therefore, we propose an expertise-driven model (ETE-FinCa) to optimize the source of expertise, instantiate IVs by the expertise concept, and interpret the cause-effect relationship by integrating concept with real economic data. The results show that the feature selection based on causal knowledge graphs improves the classification performance than others, with up to a 11.7% increase in accuracy and a 23.0% increase in F1-score. Furthermore, the high-quality IVs we defined can identify causal relationships between the treatment and outcome variables in the Two-Stage Least Squares Regression model with statistical significance.
Authors
- K. Inoue (ORCID: https://orcid.org/0000-0001-6313-3837)
- Ying Chen (ORCID: https://orcid.org/0000-0002-4780-4642)
- Ryutaro Ichise (ORCID: https://orcid.org/0000-0001-8474-0150)
- Ziwei Xu (ORCID: https://orcid.org/0000-0002-1081-0475)
Institutions
- Tokyo Institute of Technology (JP)
- National Institute of Advanced Industrial Science and Technology (JP)
Publication Details
- Published
- 2024-12-18
- DOI
- https://doi.org/10.1109/icmla61862.2024.00165
- Primary Topic
- Stock Market Forecasting Methods
- Type
- article
- Field-Weighted Citation Impact
- 0.00