arXiv 13 May 2019 · Finance — Statistical Finance · publishedThe Journal of Finance and Data Science (2022) · 8 citations (OpenAlex)
arXiv:1905.05237 · PDF · DOI · OpenAlex · Extracted main text
We use supervised learning to identify factors that predict the cross-section of returns and maximum drawdown for stocks in the US equity market. Our data run from January 1970 to December 2019 and our analysis includes ordinary least squares, penalized linear regressions, tree-based models, and neural networks. We find that the most important predictors tended to be consistent across models, and that non-linear models had better predictive power than linear models. Predictive power was higher in calm periods than in stressed periods. Environmental, social, and governance indicators marginally impacted the predictive power of non-linear models in our data, despite their negative correlation with maximum drawdown and positive correlation with returns. Upon exploring whether ESG variables are captured by some models, we find that ESG data contribute to the prediction nonetheless.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Gu, S., Kelly, B., and Xiu, D (2018) Empirical asset pricing via machine learning | 0.811 | 4 | 2 | 100% |
| 2 | Lundberg, S. M. and Lee, S (2017) A unified approach to interpreting model predictions | 0.737 | 3 | 2 | 100% |
| 3 | Breiman, L (2001) Random forests | 0.511 | 2 | 1 | 100% |
| 4 | Chen, T. and Guestrin, C (2016) XGBoost: A scalable tree boosting system | 0.511 | 2 | 1 | 100% |
| 5 | Altmann, A., Tolosi, L., Sander, O., and Lengauer, T (2010) Permutation importance: a corrected importance measure | 0.405 | 1 | 1 | 100% |
| 6 | Aupperle, K. E., Carroll, A. B., and Hatfield, J. D (1985) An empirical examination of the relationship between corporate social responsibility and profitability | 0.405 | 1 | 1 | 100% |
| 7 | Benlemlih, M., Shaukat, A., Qiu, Y., and Trojanowski, G (2018) Environmental and social disclosures and firm risk | 0.405 | 1 | 1 | 100% |
| 8 | Brammer, S., Brooks, C., and Pavelin, S (2006) Corporate social performance and stock returns: Uk evidence from disaggregated measures | 0.405 | 1 | 1 | 100% |
| 9 | Carhart, M. M (1997) On persistence in mutual fund performance | 0.405 | 1 | 1 | 100% |
| 10 | Chekhlov, A., Uryasev, S., and Zabarankin, M (2004) Portfolio optimization with drawdown constraints | 0.405 | 1 | 1 | 100% |
Showing the top 10 of 56 scored citations.