Factor Models, Machine Learning, and Asset Pricing

Stefano Giglio (), Bryan Kelly () and Dacheng Xiu
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Stefano Giglio: Yale School of Management, Yale University, New Haven, Connecticut, USA
Bryan Kelly: Yale School of Management, Yale University, New Haven, Connecticut, USA

Annual Review of Financial Economics, 2022, vol. 14, issue 1, 337-368

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.

Keywords: asset pricing; factor models; machine learning; risk premium; stochastic discount factor (search for similar items in EconPapers)
JEL-codes: C52 C55 C58 G0 G1 G17 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (26)

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DOI: 10.1146/annurev-financial-101521-104735

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