A machine learning approach for comparing the largest firm effect

Jang Ho Kim, Jiwoon Han, Taehyeon Kang and Frank J. Fabozzi

Emerging Markets Review, 2023, vol. 54, issue C

Abstract: Market capitalization of firms provides valuable information for analyzing stock markets and the size factor is widely used in factor-based investing. Some markets, such as the Korean market, are especially interesting in this respect because they contain extremely large public firms. This study analyzes the effect of the largest firm on factor investing through machine learning models that are effective for variable selection. We demonstrate how machine learning can be used for identifying important factors. Our comparison between US and Korean markets shows the significance of separating the largest firm in analyzing how factors impact performance in the Korean market.

Keywords: Market capitalization; Variable selection; Lasso regression; Random forest (search for similar items in EconPapers)
JEL-codes: C61 C65 G15 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:54:y:2023:i:c:s1566014122001121

DOI: 10.1016/j.ememar.2022.100995

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