Author: Julia Markhovski Publisher: GRIN Verlag ISBN: 3389003649 Category : Computers Languages : en Pages : 114
Book Description
Bachelor Thesis from the year 2024 in the subject Computer Science - Commercial Information Technology, grade: 1.0, Frankfurt School of Finance & Management, language: English, abstract: In a world characterized by increasingly complex financial markets, the prediction of financial crises is a constant challenge. This bachelor thesis investigates the use of machine learning, in particular regression algorithms, to analyze and predict financial crises based on macroeconomic data. By building six different regression models and optimizing them using cross-validation and GridSearch, the feasibility of using these technologies for accurate predictions is discussed. Although traditional models show limited effectiveness, the integration of machine learning, especially kNN algorithms, reveals significant potential for improving prediction accuracy. The paper highlights the importance of classification algorithms and provides crucial insights for application in real-world scenarios to provide valuable tools for policy and business decision makers.
Author: Mr.Andrew J Tiffin Publisher: International Monetary Fund ISBN: 1513519514 Category : Computers Languages : en Pages : 30
Book Description
Machine learning tools are well known for their success in prediction. But prediction is not causation, and causal discovery is at the core of most questions concerning economic policy. Recently, however, the literature has focused more on issues of causality. This paper gently introduces some leading work in this area, using a concrete example—assessing the impact of a hypothetical banking crisis on a country’s growth. By enabling consideration of a rich set of potential nonlinearities, and by allowing individually-tailored policy assessments, machine learning can provide an invaluable complement to the skill set of economists within the Fund and beyond.
Author: Klaus-Peter Hellwig Publisher: International Monetary Fund ISBN: 1513573586 Category : Business & Economics Languages : en Pages : 66
Book Description
In this paper I assess the ability of econometric and machine learning techniques to predict fiscal crises out of sample. I show that the econometric approaches used in many policy applications cannot outperform a simple heuristic rule of thumb. Machine learning techniques (elastic net, random forest, gradient boosted trees) deliver significant improvements in accuracy. Performance of machine learning techniques improves further, particularly for developing countries, when I expand the set of potential predictors and make use of algorithmic selection techniques instead of relying on a small set of variables deemed important by the literature. There is considerable agreement across learning algorithms in the set of selected predictors: Results confirm the importance of external sector stock and flow variables found in the literature but also point to demographics and the quality of governance as important predictors of fiscal crises. Fiscal variables appear to have less predictive value, and public debt matters only to the extent that it is owed to external creditors.
Author: Jeremy Fouliard Publisher: ISBN: Category : Financial crises Languages : en Pages : 0
Book Description
Financial crises cause economic, social and political havoc. Macroprudential policies are gaining traction but are still severely under-researched compared to monetary and "fiscal policy. We use the general framework of sequential predictions, also called online machine learning, to forecast crises out-of-sample. Our methodology is based on model aggregation and is “meta-statistical”, since we can incorporate any predictive model of crises in our analysis and test its ability to add information, without making any assumption on the data generating process. We predict systemic "financial crises twelve quarters ahead out-of-sample with high signal-to-noise ratio. Our approach guarantees that picking certain time dependent sets of weights will be asymptotically similar for out-of-sample forecasts to the best ex post combination of models; it also guarantees that we outperform any individual forecasting model asymptotically. We analyse which models provide the most information for our predictions at each point in time and for each country, allowing us to gain some insights into economic mechanisms underlying the building of risk in economies.
Author: Ms. Burcu Hacibedel Publisher: International Monetary Fund ISBN: Category : Business & Economics Languages : en Pages : 48
Book Description
In this paper, we study systemic non-financial corporate sector distress using firm-level probabilities of default (PD), covering 55 economies, and spanning the last three decades. Systemic corporate distress is identified by elevated PDs across a large portion of the firms in an economy. A machine-learning based early warning system is constructed to predict the onset of distress in one year’s time. Our results show that credit expansion, monetary policy tightening, overvalued stock prices, and debt-linked balance-sheet weaknesses predict corporate distress. We also find that systemic corporate distress events are associated with contractions in GDP and credit growth in advanced and emerging markets at different degrees and milder than financial crises.
Author: Emile du Plessis Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
A reflection on the lackluster growth over the decade since the Global Financial Crisis has renewed interest in preventative measures for a long-standing problem. Advances in machine learning algorithms during this period present promising forecasting solutions. In this context, the paper develops new forecasting methods for an old problem by employing 13 machine learning algorithms to study 147 year of systemic financial crises across 17 countries. It entails 12 leading indicators comprising real, banking and external sectors. Four modelling dimensions encompassing a contemporaneous pooled format through an expanding window, transformations with a lag structure and 20-year rolling window as well as individual format are implemented to assess performance through recursive out-of-sample forecasts. Findings suggest fixed capital formation is the most important variable. GDP per capita and consumer inflation have increased in prominence whereas debt-to-GDP, stock market and consumption were dominant at the turn of the 20th century. Through a lag structure, banking sector predictors on average describe 28 percent of the variation in crisis prevalence, real sector 64 percent and external sector 8 percent. A lag structure and rolling window both improve on optimised contemporaneous and individual country formats. Nearly half of all algorithms reach peak performance through a lag structure. As measured through AUC, F1 and Brier scores, top performing machine learning methods consistently produce high accuracy rates, with both random forests and gradient boosting in front with 77 percent correct forecasts. Top models contribute added value above 20 percentage points in most instances and deals with a high degree of complexity across several countries.
Author: El Bachir Boukherouaa Publisher: International Monetary Fund ISBN: 1589063953 Category : Business & Economics Languages : en Pages : 35
Book Description
This paper discusses the impact of the rapid adoption of artificial intelligence (AI) and machine learning (ML) in the financial sector. It highlights the benefits these technologies bring in terms of financial deepening and efficiency, while raising concerns about its potential in widening the digital divide between advanced and developing economies. The paper advances the discussion on the impact of this technology by distilling and categorizing the unique risks that it could pose to the integrity and stability of the financial system, policy challenges, and potential regulatory approaches. The evolving nature of this technology and its application in finance means that the full extent of its strengths and weaknesses is yet to be fully understood. Given the risk of unexpected pitfalls, countries will need to strengthen prudential oversight.
Author: Daniel Fricke Publisher: ISBN: Category : Languages : en Pages : 9
Book Description
In this paper we compare different models for financial crisis prediction, focusing on methods from the field of Machine Learning (ML). These methods are particularly promising, since they were specifically designed for making predictions. In our application, we find that the performance on these methods depends on whether we look at in-sample or out-of-sample predictions. In the latter case, they do not always outperform more traditional approaches (such as Logistic regressions). Nevertheless, we find that these methods can be useful and should therefore become a standard element in the toolbox of empirical researchers.
Author: Christopher Gandrud Publisher: ISBN: Category : Languages : en Pages : 40
Book Description
This paper studies how self-fulfilling dynamics affect the predictability of financial crises. We build a model in which market participants play an investment coordination game with common economic shocks and private information about their own willingness to cooperate. An observer attempts to predict the occurrence of a financial crisis in the future based on the players' actions in the present. Under favorable conditions, good market conditions prevent an observer from learning about players' types by observing their actions. This induces a negative correlation between economic conditions in the present and the variance of players' types in the following period, which defines the predictability of financial crises. Under more extreme positive market conditions, the observer cannot use present observations of the players to learn about the probability of a financial crisis in the future. We test the implications of the model using a new continuous measure of financial market stress - “FinStress” - developed by Gandrud and Hallerberg (2015). We find support for a key implication of our theory: the variance of financial market stress is larger following periods of good economic conditions than following poor economic conditions. These conclusions have implications for both empirical analyses of the predictors of financial crises and for policymakers seeking to prevent crises. The findings in our paper suggest that regulators should focus on actors' types (e.g. with stress tests) more than macro-economic conditions. More broadly, our analysis provides a new explanation for why social scientists and area specialists are generally poor at predicting events that require mass coordination, such as financial crises, coups, and revolutions.
Author: Julia Markhovski
Author: Mr.Andrew J Tiffin
Author: Klaus-Peter Hellwig
Author: Jeremy Fouliard
Author: Ms. Burcu Hacibedel
Author: Emile du Plessis
Author: El Bachir Boukherouaa
Author: Daniel Fricke
Author: Mary Chen
Author: Christopher Gandrud