Fin-ALICE: Artificial Linguistic Intelligence Causal Econometrics

Shawn McCarthy () and Gita Alaghband
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Shawn McCarthy: Department of Computer Science and Engineering, University of Colorado Denver, Denver, CO 80204, USA
Gita Alaghband: Department of Computer Science and Engineering, University of Colorado Denver, Denver, CO 80204, USA

JRFM, 2024, vol. 17, issue 12, 1-21

Abstract: This study introduces Fin-ALICE (Artificial Linguistic Intelligence Causal Econometrics), a framework designed to forecast financial time series by integrating multiple analytical approaches including co-occurrence networks, supply chain analysis, and emotional sentiment analysis to provide a comprehensive understanding of market dynamics. In our co-occurrence analysis, we focus on companies that share the same emotion on the same day, using a much shorter horizon than our previous study of one month. This approach allows us to uncover short-term, emotion-driven correlations that traditional models might overlook. By analyzing these co-occurrence networks, Fin-ALICE identifies hidden connections between companies, sectors, and events. Supply chain analysis within Fin-ALICE will evaluate significant events in commodity-producing countries that impact their ability to supply key resources. This analysis captures the ripple effects of disruptions across industries and regions, offering a more nuanced prediction of market movements. Emotional sentiment analysis, powered by the Fin-Emotion library developed in our prior research, quantifies the emotional undertones in financial news through metrics like “emotion magnitude” and “emotion interaction”. These insights, when integrated with Temporal Convolutional Networks (TCNs), significantly enhance the accuracy of financial forecasts by capturing the emotional drivers of market sentiment. Key contributions of Fin-ALICE include its ability to perform month-by-month company correlation analysis, capturing short-term market fluctuations and seasonal patterns. We compare the performance of TCNs against advanced models such as LLMs and LSTMs, demonstrating that the Fin-ALICE model outperforms these models, particularly in sectors where emotional sentiment and supply chain dynamics are critical. Fin-ALICE provides decision-makers with predictive insights and a deeper understanding of the underlying emotional and supply chain factors that drive market behaviors.

Keywords: financial market analysis; sentiment analysis; supply chain; time series forecasting; temporal convolutional networks; large language models; emotion interaction (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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