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Annual Review of Financial Economics

Volume 14, 2022

Factor Models, Machine Learning, and Asset Pricing

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.

Keyword(s): asset pricing, factor models, JEL C52, JEL C55, JEL C58, JEL G0, JEL G1, JEL G17, machine learning, risk premium, stochastic discount factor
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/content/journals/10.1146/annurev-financial-101521-104735
2022-11-01
2024-05-13
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/content/journals/10.1146/annurev-financial-101521-104735
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Factor Models, Machine Learning, and Asset Pricing
Annual Review of Financial Economics 14, 337 (2022); https://doi.org/10.1146/annurev-financial-101521-104735
/content/journals/10.1146/annurev-financial-101521-104735
/content/journals/10.1146/annurev-financial-101521-104735
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