Sector-specific financial forecasting with machine learning algorithm and SHAP interaction values

Ergenç Cansu () and Aktaş Rafet ()
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Ergenç Cansu: Ankara Yildirim Beyazit University, Ankara, Turkey
Aktaş Rafet: Ankara Yildirim Beyazit University, Ankara, Turkey

Financial Internet Quarterly (formerly e-Finanse), 2025, vol. 21, issue 1, 42-66

Abstract: This study examines the application of machine learning models to predict financial performance in various sectors, using data from 21 companies listed in the BIST100 index (2013-2023). The primary objective is to assess the potential of these models in improving financial forecast accuracy and to emphasize the need for transparent, explainable approaches in finance. A range of machine learning models, including Linear Regression, Ridge, Lasso, Decision Tree, Bagging, Random Forest, AdaBoost, Gradient Boosting (GBM), LightGBM, and XGBoost, were evaluated. Gradient Boosting emerged as the best-performing model, with ensemble methods generally demonstrating superior accuracy and stability compared to linear models. To enhance interpretability, SHAP (SHapley Additive exPlanations) values were utilized, identifying the most influential variables affecting predictions and providing insights into model behavior. Sector-based analyses further revealed differences in model performance and feature impacts, offering a granular understanding of financial dynamics across industries. The findings highlight the effectiveness of machine learning, particularly ensemble methods, in forecasting financial performance. The study underscores the importance of using explainable models in finance to build trust and support decision-making. By integrating advanced techniques with interpretability tools, this research contributes to financial technology, advancing the adoption of machine learning in data-driven investment strategies.

Keywords: Machine Learning Models; SHAP; Financial Forecasting (search for similar items in EconPapers)
JEL-codes: C51 C52 C53 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:finiqu:v:21:y:2025:i:1:p:42-66:n:1004

DOI: 10.2478/fiqf-2025-0004

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