High-Frequency Expectations from Asset Prices: A Machine Learning Approach

65 Pages Posted: 6 Nov 2020 Last revised: 28 Mar 2022

See all articles by Aditya Chaudhry

Aditya Chaudhry

University of Chicago - Booth School of Business

Sangmin Oh

University of Chicago - Booth School of Business; University of Chicago, Booth School of Business, Finance, Students

Date Written: September 16, 2020

Abstract

We propose a novel reinforcement learning approach to extract high-frequency aggregate growth expectations from asset prices. While much expectations-based research in macroeconomics and finance relies on low-frequency surveys, the multitude of events that pass between survey dates renders identification of causal effects on expectations difficult. Our method allows us to construct a daily time-series of the cross-sectional mean of a panel of GDP growth forecasts. The high-frequency nature of our series enables clean identification in event studies. In particular, we use our estimated daily growth expectations series to test the “Fed information effect.” Extensions of our framework can obtain daily expectations series of any macroeconomic variable for which a low-frequency panel of forecasts is available. In this way, our method provides a sharp empirical tool to advance understanding of how expectations are formed.

Keywords: Growth Expectations, Machine Learning, Reinforcement Learning, Federal Reserve, Forecasts, Survey

JEL Classification: G10, G12, G17, E44, E52, C58

Suggested Citation

Chaudhry, Aditya and Oh, Sangmin and Oh, Sangmin, High-Frequency Expectations from Asset Prices: A Machine Learning Approach (September 16, 2020). Available at SSRN: https://ssrn.com/abstract=3694019 or http://dx.doi.org/10.2139/ssrn.3694019

Aditya Chaudhry

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Sangmin Oh (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

University of Chicago, Booth School of Business, Finance, Students ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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