Text Mining on Financial News

First of all we have to find the source of the news : It could be financial news sites such as Bloomberg, Financial Times, or RSS Feeds URLs such as the ones provided by MarketWatch. RSS …

First of all we have to find the source of the news : It could be financial news sites such as Bloomberg, Financial Times, or RSS Feeds URLs such as the ones provided by MarketWatch. RSS Feeds might be a better solution because there is already some predetermined categorization of news according to the feed type and this can be great help for some analysts.

After finding the news sources and making the necessary code to get the actual information we could end up with the following text file :

You can see that i use a ‘^’ separator to differentiate between :

1) A date stamp,
2) A date string
3) The news string
4) A characterization of the news (important or unimportant)
5) A categorization of the financial news.

This simple file could provide the basis for a training file for text categorization. Assuming that we have trained algorithms to automatically classify news, we could use a news classifier to first categorize news to important or unimportant and pass only the important news to a second classifier which will do the detailed classification of the news.

Another option is to use clustering : You can imagine that the solution detailed above has a tremendous amount of work depending on how much data you are planning to collect…so too much data means too much work, less data could mean -usually but not always- less accuracy.

But how could clustering be performed on such data? Simply, we just use field number (4) on our training text file to train a clustering algorithm and then see what ‘classes’ the algorithm has come up with.

So let’s see a small example about clustering : This is a capture from WEKA just before the clustering process :

As you can see i have produced a training file which essentially contains the ‘buzzwords’ of financial news : barrel, recession, Yen, Euro, ECB, price, consumer, etc. The file is then analyzed by K-means algorithm to extract clusters of the same ‘buzzwords’. Each cluster is assigned a number so each news header ultimately falls onto one cluster number.

After running the K-Means algorithm i ended up with 16 clusters. Let’s see two instances that K-Means decided that they should fall under cluster ‘6’ :

Instance_number : 130.0

Fear
Decrease
US
Economy
Futures

and

Instance_number : 174.0

Fear
Decrease
US
Price
Oil
Banking
Recession

So the first instance is about fear of drop in US Economy which results in Futures in US dropping and the second instance must be -something about- a decrease of Oil prices and Banking stocks because of the fear of US recession. Not bad at all…

But not so fast : Clustering presents a lot of problems later in the process. Remember that what we are after, is to combine text mining and data mining together to better understand how the markets react. Should one use classification or clustering? There are many more things to take under consideration and for obvious reasons i cannot disclose all the details of such a project…but i am hoping to give to the interested reader a good enough introduction on the subject.