ACT-Tensor: Tensor Completion Framework for Financial Dataset Imputation

TL;DR

ACT-Tensor is a novel tensor completion framework designed to accurately impute missing data in multi-dimensional financial panels, improving asset pricing and investment strategies by capturing heterogeneity and temporal trends.

Contribution

The paper introduces ACT-Tensor, a new adaptive, cluster-based tensor completion method that effectively handles severely and heterogeneously missing financial data panels.

Findings

Outperforms state-of-the-art benchmarks in imputation accuracy.

Reduces pricing errors in asset-pricing models.

Enhances risk-adjusted returns of investment portfolios.

Abstract

Missing data in financial panels presents a critical obstacle, undermining asset-pricing models and reducing the effectiveness of investment strategies. Such panels are often inherently multi-dimensional, spanning firms, time, and financial variables, which adds complexity to the imputation task. Conventional imputation methods often fail by flattening the data's multidimensional structure, struggling with heterogeneous missingness patterns, or overfitting in the face of extreme data sparsity. To address these limitations, we introduce an Adaptive, Cluster-based Temporal smoothing tensor completion framework (ACT-Tensor) tailored for severely and heterogeneously missing multi-dimensional financial data panels. ACT-Tensor incorporates two key innovations: a cluster-based completion module that captures cross-sectional heterogeneity by learning group-specific latent structures; and a temporal smoothing module that proactively removes short-lived noise while preserving slow-moving fundamental trends. Extensive experiments show that ACT-Tensor consistently outperforms state-of-the-art benchmarks in terms of imputation accuracy across a range of missing data regimes, including extreme sparsity scenarios. To assess its practical financial utility, we evaluate the imputed data with an asset-pricing pipeline tailored for tensor-structured financial data. Results show that ACT-Tensor not only reduces pricing errors but also significantly improves risk-adjusted returns of the constructed portfolio. These findings confirm that our method delivers highly accurate and informative imputations, offering substantial value for financial decision-making.