Interpretable Factor Decomposition for Decision Intelligence in Large-Scale Financial Markets: Evidence from China's A-Share Market
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Abstract (arXiv)
We present an interpretable machine learning pipeline to decompose cross-sectional equity return predictability into auditable factor contributions. We apply an XGBoost model with TreeSHAP attribution and conduct stress testing on 3,632 Chinese A-share stocks from 2009 until 2019. On prediction, using 60-month rolling windows over 55 months of out-of-sample data, XGBoost obtains a mean AUC of 0.547 (rank IC = 0.119) and +2.38%/month (Newey-West t = 5.94; annualized Sharpe 2.23) long-short spread for the top vs bottom quintiles. This alpha is persistent after adjusting for the Carhart four-factor model (+2.31%/month; t = 7.48). On interpretation, SHAP decomposition indicates that behavioral signals (turnover and momentum) account for 58.2% of predictive attribution compared to 10.7% for valuation ratios, on average, across 50 industry groups. Ablation analysis serves to cross-validate this ranking and provides evidence that SHAP and ablation diverge in a manner that highlights feature substitutability structure that is largely invisible to either method used in isolation.
Key facts. Cited by 4 papers in the map (data through 14 Oct 2026). Builds on 5 of its 28 references that are in the map. First posted on arXiv 11 Jun 2026.
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5 of 28 references.
References · 5
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- 2019Explainable AI for Trees: From Local Explanations to Global Understandingcited by 65
- 2026Unstable Rankings in Bayesian Deep Learning Evaluationcited by 1
- 2026A Tale of Two Variances: When Single-Seed Benchmarks Fail in Bayesian Deep Learningcited by 1
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Citing papers per year: 2026: 4.
4 papers.
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- 2026What Breaks in Multi-Image Schema Application? Factorial Oracle Interventions Reveal an Instance-Information Bottleneck14 Oct 2026
- 2026Same Question, Different Answer? Measuring and Mitigating Prompt Privilege for Equitable AI Access9 Aug 2026
- 2026Evidence-Unit Fairness and the Limits of Query-Adaptive Sparse-Dense Fusion in Financial Document Retrieval31 Jul 2026
- 2026MOSAIC: Orchestrating Collaborative Knowledge Tracing with Hierarchical Semantic Alignment27 Jun 2026