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- Title
Deep Learning in Asset Pricing.
- Authors
Chen, Luyang; Pelger, Markus; Zhu, Jason
- Abstract
We use deep neural networks to estimate an asset pricing model for individual stock returns that takes advantage of the vast amount of conditioning information, keeps a fully flexible form, and accounts for time variation. The key innovations are to use the fundamental no-arbitrage condition as criterion function to construct the most informative test assets with an adversarial approach and to extract the states of the economy from many macroeconomic time series. Our asset pricing model outperforms out-of-sample all benchmark approaches in terms of Sharpe ratio, explained variation, and pricing errors and identifies the key factors that drive asset prices. This paper was accepted by Agostino Capponi, finance. Supplemental Material: The online appendix and data are available at https://doi.org/10.1287/mnsc.2023.4695.
- Subjects
ARTIFICIAL neural networks; DEEP learning; PRICES; RATE of return on stocks; STOCK price forecasting; SHARPE ratio
- Publication
Management Science, 2024, Vol 70, Issue 2, p714
- ISSN
0025-1909
- Publication type
Article
- DOI
10.1287/mnsc.2023.4695