Factor Models, Machine Learning, and Asset Pricing

Posted: 10 Nov 2022

See all articles by Stefano Giglio

Stefano Giglio

Yale School of Management; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Bryan T. Kelly

Yale SOM; AQR Capital Management, LLC; National Bureau of Economic Research (NBER)

Dacheng Xiu

University of Chicago - Booth School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: November 2022

Abstract

We survey recent methodological contributions in asset pricing using factor models and machine learning. We organize these results based on their primary objectives: estimating expected returns, factors, risk exposures, risk premia, and the stochastic discount factor as well as model comparison and alpha testing. We also discuss a variety of asymptotic schemes for inference. Our survey is a guide for financial economists interested in harnessing modern tools with rigor, robustness, and power to make new asset pricing discoveries, and it highlights directions for future research and methodological advances.

Suggested Citation

Giglio, Stefano and Kelly, Bryan T. and Xiu, Dacheng, Factor Models, Machine Learning, and Asset Pricing (November 2022). Annual Review of Financial Economics, Vol. 14, pp. 337-368, 2022, Available at SSRN: https://ssrn.com/abstract=4267961 or http://dx.doi.org/10.1146/annurev-financial-101521-104735

Stefano Giglio (Contact Author)

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
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National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Bryan T. Kelly

Yale SOM ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Dacheng Xiu

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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