Nonlinear Alpha Modeling

Lingjie Ma ()
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Lingjie Ma: University of Illinois, Chicago, Finance

Chapter Chapter 4 in Nonlinear Investing: A Quantamental Approach, 2025, pp 85-141 from Springer

Abstract: Abstract In the previous chapter, we discussed nonlinearity at the individual factor level. In this chapter, we discuss nonlinearity at the alpha level. Alpha usually comprise factors at various economic levels, such as the company, industry, market, etc. Accordingly, we explore nonlinear relationships between individual factors as well as between sets of factors and returns. Asset returns usually do not follow a normal distribution; rather, their distributions tend to be highly skewed, with long and fat tails. Therefore, we also investigate the nonlinear impacts of factors on the distribution of returns so that we can forecast the distribution of alpha.

Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-76305-2_4

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DOI: 10.1007/978-3-031-76305-2_4

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