LDA-Based Industry Classification

Industry classification is a crucial step for financial analysis. However, existing industry classification schemes have several limitations. In order to overcome these limitations, in this paper, we propose an industry classification methodology on the basis of business commonalities using the topic features learned by the Latent Dirichlet Allocation (LDA) from firms’ business descriptions. Two types of classification – firm-centric classification and industry-centric classification were explored. Preliminary evaluation results showed the effectiveness of our method