Financial Sentiment Analysis: Large Language Model, RAG

In the rapidly evolving landscape of financial sentiment analysis, advanced technologies are more important than ever for traders and financial institutions. Although traditional models have achieved considerable success, the advent of large language models (LLMs) and enhanced natural language processing techniques are paving the way for unprecedented advances in this field. A few game-changing innovations are shaping the future of finance.

Finance Sentiment Analysis: Why Should We Care?

We can gain valuable insight into market trends and investor behaviour by mining financial documents, news articles, and social media content. Analysis of sentiment provides insight into the market’s emotional undercurrents. Managing risk and identifying investment opportunities helps financial institutions and traders gain a competitive advantage.

Limited capabilities of current technology

While traditional Natural Language Processing (NLP) models have been a cornerstone of sentiment analysis for many years, they have limitations. In addition to their static nature, such models are difficult to expand or refine once trained. It is also difficult for them to explain the rationale behind their predictions, and sometimes, their information is inaccurate. Also, these models are often unable to cope with financial news’ complex language and emotional nuances, and traders and analysts often experience suboptimal results, which result in errors and missed opportunities.

An emerging class of large language models

In the last few years, Large Language Models (LLM) such as BloombergGPT and FinGPT have introduced a new perspective to the market. The fact that these models could learn in context and apply chain-of-thought reasoning made them a very appealing choice. Despite this, there were challenges, even for these highly specialized models. The main problem was a disconnect between the primary training objectives of the models and the specific requirements of financial sentiment analysis. Moreover, the shortness of financial news and tweets posed additional challenges for these LLMs.

The Impact of Large Language Models

Large Language Models (LLMs) have received great attention and have been making a big splash across various NLP fields. Numerous datasets have been used for training these models, and they have demonstrated remarkable adaptability. However, the application of sentiment analysis to financial data has proven challenging for two major reasons:

• A lack of natural tuning in LLMs for financial sentiment analysis results in inconsistent results.
• Taking comprehensive conclusions from financial news flashes and tweets is difficult due to insufficient context.

It’s time for Instruction Tuning

A Causal Language Model is traditionally used to train LLMs but can produce unpredictable results. Using a set of specific tasks and their desired outcomes, instruction tuning fine-tunes these models. This training strategy allows LLMs to follow user instructions more effectively, allowing them to behave more accurately and with greater control.

Bringing Retrieval Augmented Generation to Life

One noteworthy advancement is RAG (Retrieval Augmented Generation). The RAG model takes a pre-trained sequence-to-sequence (seq2seq) model and augments it with a non-parametric memory system. The memory system is a dense vector index of an extensive knowledge base like Wikipedia. The model uses a neural retriever to access this index and pulls in relevant information based on the input query. Despite its end-to-end training approach, RAG is a powerful tool for learning both the generator and the retriever.

It’s more than just a theoretical exercise; the results are compelling. It has been shown that RAG models outperform others on knowledge-intensive tasks. They are pushing the boundaries regarding fact verification or generating highly accurate and specific responses. They are extremely versatile and can handle any seq2seq task with great precision.

RAG models incorporate two core components: a retriever and a generator. A retriever scans through many text documents and returns the most pertinent information as additional context. Using this context and the input sequence, the generator creates an output sequence based on the input sequence.

Additional Insights into RAG??

• Generation Diversity: RAG models generate more diverse responses than BART without requiring diversity-boosting decoding.

• Retrieval Effectiveness: It is demonstrated that RAG’s retrieval mechanism plays a critical role in its performance. With other retrieval methods, such as BM25, it tends to degrade performance, particularly in open-domain QA tasks.

• Index Hot-Swapping: RAG models are advantageous because their non-parametric knowledge is easily updated. As new data becomes available, this is particularly useful for maintaining the models.

• Scalability: Besides being non-parametric, RAG models are advantageous for updating their knowledge. Maintaining models becomes particularly important as new data becomes available.

This RAG supplements LLMs with external knowledge sources such as news, research publications, and social media, making this technique a game-changer. LLMs generate output after fetching relevant documents based on input prompts. Using dual knowledge, applications beyond sentiment analysis, such as code summarisation and open-world QA, can be made more accurate and context-relevant.?

Toward a Two-Module Revolution

The first module fine-tunes an open-source Large Language Model for financial sentiment analysis, such as LLaMA or ChatGLM, to incorporate the power of instruction-tuned LLMs with retrieval augmented generation (RAG). A dataset designed specifically for this purpose can be used to predict the financial sentiment of an article or tweet.

To obtain relevant background information, trusted external sources are consulted in the second module, the RAG. Consider gathering data from Bloomberg, Reuters, and social media platforms like Twitter and Reddit. A fine-tuned LLM can generate more accurate predictions by combining this additional context with the original query.?

A Three-Step Process for Fine-Tuning LLMs

• The first step is constructing a dataset containing paired instructions and expected responses (essentially, the sentiment labels). To effectively train the LLMs, this dataset serves as the basis.
• Using causal language modelling, the LLMs are fine-tuned based on the given context, which aims to predict the next token. In this manner, the model can generate accurate responses when given specific instructions.?
• ?Lastly, the generated outputs are mapped to predefined sentiment classes, allowing the model’s performance to be measured and aligned with the task.?

We have discussed theory and methodology, but what about actual results? The evaluation metrics and datasets must be examined in detail to perform benchmarks. The performance has to be evaluated by two key metrics: Accuracy and F1-score. The model’s performance in identifying the right sentiments while balancing precision and recall is evident in these metrics. In zero-shot evaluations, the instruction-tuned LLaMA-7B model achieves the highest accuracy and F1 score compared to the baseline models.?

Besides outperforming existing models, instruction tuning and RAG demonstrate impressive capabilities in dealing with context-deficient scenarios.

Takeaway

With external knowledge retrieval incorporated into Large Language Models, the model can gain a deeper, more nuanced understanding of the financial landscape. In the fast-paced world of finance, this enhances its predictive capabilities.

As a result of instruction tuning, the developed model must be trained to understand better and respond to user-generated financial queries. The result is a higher level of prediction accuracy. Technology will continue to develop in financial markets, such as the S&P 500 and other major market indexes. As part of such an environment, the model will be tested for versatility and demonstrated for effectiveness.

Ref: Full Citation:?Zhang, B. (2023, October 6).?Enhancing Financial Sentiment Analysis via Retrieval Augmented Large Language Models. arXiv.org . https://arxiv.org/abs/2310.04027

Originally published in techbeatly