Artikel
Empirical asset pricing via machine learning: evidence from the European stock market
This paper evaluates the predictive performance of machine learning methods in forecasting European stock returns. Compared to a linear benchmark model, interactions and nonlinear effects help improve the predictive performance. But machine learning models must be adequately trained and tuned to overcome the high dimensionality problem and to avoid overfitting. Across all machine learning methods, the most important predictors are based on price trends and fundamental signals from valuation ratios. However, the models exhibit substantial variation in statistical predictive performance that translate into pronounced differences in economic profitability. The return and risk measures of long-only trading strategies indicate that machine learning models produce sizeable gains relative to our benchmark. Neural networks perform best, also after accounting for transaction costs. A classification-based portfolio formation, utilizing a support vector machine that avoids estimating stock-level expected returns, performs even better than the neural network architecture.
- Sprache
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Englisch
- Erschienen in
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Journal: Journal of Asset Management ; ISSN: 1479-179X ; Volume: 22 ; Year: 2021 ; Issue: 7 ; Pages: 507-538 ; London: Palgrave Macmillan UK
- Klassifikation
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Wirtschaft
Portfolio Choice; Investment Decisions
Asset Pricing; Trading Volume; Bond Interest Rates
Information and Market Efficiency; Event Studies; Insider Trading
Financial Forecasting and Simulation
- Thema
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Stock return prediction
Machine learning
Active trading strategy
- Ereignis
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Geistige Schöpfung
- (wer)
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Drobetz, Wolfgang
Otto, Tizian
- Ereignis
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Veröffentlichung
- (wer)
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Palgrave Macmillan UK
- (wo)
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London
- (wann)
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2021
- DOI
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doi:10.1057/s41260-021-00237-x
- Letzte Aktualisierung
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10.03.2025, 11:42 MEZ
Datenpartner
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Objekttyp
- Artikel
Beteiligte
- Drobetz, Wolfgang
- Otto, Tizian
- Palgrave Macmillan UK
Entstanden
- 2021