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On the Three Demons in Causality in Finance: Time Resolution, Nonstationarity, and Latent Factors

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  • Xinshuai Dong
  • Haoyue Dai
  • Yewen Fan
  • Songyao Jin
  • Sathyamoorthy Rajendran
  • Kun Zhang

Abstract

Financial data is generally time series in essence and thus suffers from three fundamental issues: the mismatch in time resolution, the time-varying property of the distribution - nonstationarity, and causal factors that are important but unknown/unobserved. In this paper, we follow a causal perspective to systematically look into these three demons in finance. Specifically, we reexamine these issues in the context of causality, which gives rise to a novel and inspiring understanding of how the issues can be addressed. Following this perspective, we provide systematic solutions to these problems, which hopefully would serve as a foundation for future research in the area.

Suggested Citation

  • Xinshuai Dong & Haoyue Dai & Yewen Fan & Songyao Jin & Sathyamoorthy Rajendran & Kun Zhang, 2023. "On the Three Demons in Causality in Finance: Time Resolution, Nonstationarity, and Latent Factors," Papers 2401.05414, arXiv.org, revised Jan 2024.
    • Handle: RePEc:arx:papers:2401.05414
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    References listed on IDEAS

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