Sector Categorization Using Gradient Boosted Trees Trained on Fundamental Firm Data

Abstract

We examine to what extent the GICS sector categorization of equity securities may be systematically reconstructed from historical quarterly firm fundamental data using gradient boosted tree classification. Model complexity and performance tradeoffs are examined and relative feature importance is described. Potential extensions are outlined including ideas to improve feature engineering, validating internal consistency and integrating additional data sources to further improve classification accuracy.

Keywords: GICS Sector, Gradient Boosted Trees, Fundamental Data, Financial Ratios

JEL Classification: D40, C80