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CFA Level I · CFA Level I Exam · Introduction to Financial Data Science

An analyst builds a bag-of-words document term matrix from 2,000 corporate disclosures to predict whether a firm will cut its dividend. Compared with a representation that preserves word order, the bag-of-words approach most likely:

Bag-of-words most likely loses information about word sequence and context. It counts tokens per document without regard to order, so phrases like "did not increase" are not captured reliably. The matrix still has one row per document, and handling of negation is weaker, not stronger.

  1. Aloses information about the sequence and context of wordsCorrect
  2. Bcaptures negation such as "did not increase" more reliably
  3. Crequires fewer rows than the number of documents

Explanation

Bag-of-words treats each document as a collection of token counts and ignores order, so context such as negation is lost. It still has one row per document, so the third option is wrong. Negation is handled worse, not better.

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