Machine Learning for Temporal Data in Finance: Challenges and Opportunities

TL;DR

This paper reviews the challenges and opportunities of applying machine learning to temporal data in finance, emphasizing the importance of capturing temporal richness and multi-scale data streams for improved modeling.

Contribution

It provides a comprehensive review of temporal data types in finance, current ML approaches, and discusses key challenges and future opportunities in this domain.

Findings

Temporal data are often underutilized in finance ML models.

Current approaches treat temporal data as static or aggregate features.

There are significant opportunities for advanced ML techniques to better leverage temporal information.

Abstract

Temporal data are ubiquitous in the financial services (FS) industry -- traditional data like economic indicators, operational data such as bank account transactions, and modern data sources like website clickstreams -- all of these occur as a time-indexed sequence. But machine learning efforts in FS often fail to account for the temporal richness of these data, even in cases where domain knowledge suggests that the precise temporal patterns between events should contain valuable information. At best, such data are often treated as uniform time series, where there is a sequence but no sense of exact timing. At worst, rough aggregate features are computed over a pre-selected window so that static sample-based approaches can be applied (e.g. number of open lines of credit in the previous year or maximum credit utilization over the previous month). Such approaches are at odds with the deep learning paradigm which advocates for building models that act directly on raw or lightly processed data and for leveraging modern optimization techniques to discover optimal feature transformations en route to solving the modeling task at hand. Furthermore, a full picture of the entity being modeled (customer, company, etc.) might only be attainable by examining multiple data streams that unfold across potentially vastly different time scales. In this paper, we examine the different types of temporal data found in common FS use cases, review the current machine learning approaches in this area, and finally assess challenges and opportunities for researchers working at the intersection of machine learning for temporal data and applications in FS.