Specification LASSO and a Flexible Characteristics-Based Asset Pricing Model

Chaohua Dong, Shuyi Ge, Shaoran Li and Wen Su

Papers from arXiv.org

Abstract: This paper studies a partially linear semiparametric additive model that allows for interactions among variables in high-dimensional settings. We propose the Specification LASSO (S-LASSO), a two-step method that integrates LASSO and Adaptive Group LASSO to simultaneously perform variable selection and model specification. Theoretically, we establish that S-LASSO possesses oracle properties in terms of selection consistency and asymptotic normality. Monte Carlo simulations confirm that S-LASSO outperforms existing alternatives across a variety of scenarios. Empirically, we apply S-LASSO to a characteristics-based asset pricing model, exploring the linear and nonlinear effects of asset-specific characteristics on cross-sectional returns, as well as their interactions with firm size.

Date: 2026-11
References: Add references at CitEc
Citations:

Downloads: (external link)
https://arxiv.org/pdf/2611.03391 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2611.03391

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().