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Explainable artificial intelligence for crypto asset allocation

Author

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  • Babaei, Golnoosh
  • Giudici, Paolo
  • Raffinetti, Emanuela

Abstract

Many investors have been attracted by Crypto assets in the last few years. However, despite the possibility of gaining high returns, investors bear high risks in crypto markets. To help investors and make the markets more reliable, Robot advisory services are rapidly expanding in the field of crypto asset allocation. Robot advisors not only reduce costs but also improve the quality of the service by involving investors and make the market more transparent. However, the reason behind the given solutions is not clear and users face a black-box model that is complex. The aim of this paper is to improve trustworthiness of robot advisors, to facilitate their adoption. For this purpose, we apply Shapley values to the predictions generated by a machine learning model based on the results of a dynamic Markowitz portfolio optimization model and provide explanations for what is behind the selected portfolio weights.

Suggested Citation

  • Babaei, Golnoosh & Giudici, Paolo & Raffinetti, Emanuela, 2022. "Explainable artificial intelligence for crypto asset allocation," Finance Research Letters, Elsevier, vol. 47(PB).
    • Handle: RePEc:eee:finlet:v:47:y:2022:i:pb:s1544612322002021
    DOI: 10.1016/j.frl.2022.102941
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    References listed on IDEAS

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    Cited by:

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    2. Fakhfekh, Mohamed & Bejaoui, Azza & Bariviera, Aurelio F. & Jeribi, Ahmed, 2024. "Dependence structure between NFT, DeFi and cryptocurrencies in turbulent times: An Archimax copula approach," The North American Journal of Economics and Finance, Elsevier, vol. 70(C).
    3. Zhou, Linjiang & Shi, Xiaochuan & Bao, Yaxiong & Gao, Lihua & Ma, Chao, 2023. "Explainable artificial intelligence for digital finance and consumption upgrading," Finance Research Letters, Elsevier, vol. 58(PC).
    4. Wei Jie Yeo & Wihan van der Heever & Rui Mao & Erik Cambria & Ranjan Satapathy & Gianmarco Mengaldo, 2023. "A Comprehensive Review on Financial Explainable AI," Papers 2309.11960, arXiv.org.
    5. Carbó, José Manuel & Gorjón, Sergio, 2024. "Determinants of the price of bitcoin: An analysis with machine learning and interpretability techniques," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 123-140.
    6. Cardillo, Giovanni & Chiappini, Helen, 2024. "Robo-advisors: A systematic literature review," Finance Research Letters, Elsevier, vol. 62(PA).
    7. Berger, Theo, 2023. "Explainable artificial intelligence and economic panel data: A study on volatility spillover along the supply chains," Finance Research Letters, Elsevier, vol. 54(C).
    8. Zhou, Ying & Li, Haoran & Xiao, Zhi & Qiu, Jing, 2023. "A user-centered explainable artificial intelligence approach for financial fraud detection," Finance Research Letters, Elsevier, vol. 58(PA).
    9. Kovvuri, Veera Raghava Reddy & Fu, Hsuan & Fan, Xiuyi & Seisenberger, Monika, 2023. "Fund performance evaluation with explainable artificial intelligence," Finance Research Letters, Elsevier, vol. 58(PB).
    10. Wang, Yijun & Andreeva, Galina & Martin-Barragan, Belen, 2023. "Machine learning approaches to forecasting cryptocurrency volatility: Considering internal and external determinants," International Review of Financial Analysis, Elsevier, vol. 90(C).

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