• Graduate Program
    • Why study Business Data Science?
    • Program Outline
    • Courses
    • Course Registration
    • Admissions
    • Facilities
  • Research
  • News
  • Summer School
    • Deep Learning
    • Machine Learning for Business
    • Tinbergen Institute Summer School Program
    • Receive updates
  • Events
    • Events Calendar
    • Events archive
    • Summer school
      • Deep Learning
      • Machine Learning for Business
      • Tinbergen Institute Summer School Program
      • Receive updates
    • Tinbergen Institute Lectures
    • Annual Tinbergen Institute Conference archive
  • Alumni
Home | Events Archive | Factor Selection in the Cross-section
Seminar

Factor Selection in the Cross-section


  • Series
    Erasmus Econometric Institute Series
  • Speakers
    Xiao Xiao (City, University of London, United Kingdom)
  • Field
    Econometrics
  • Location
    Erasmus University Rotterdam, E building, room ET-14
    Rotterdam
  • Date and time

    May 07, 2024
    12:00 - 13:00

Abstract
We examine a new approach to selecting factors that have incremental information for explaining the cross-section of asset returns in the factor zoo. Our method can: (1) identify a set of factors that significantly explain the cross-sectional asset returns; (2) establish a hierarchical order to explain the importance of factors; (3) quantify unique contributions of each factor; and (4) address which factors can be subsumed by others and to what extent. In a simulation study with multiple settings for factor structures, we demonstrate that our method outperforms both stepwise regression (i.e., forward selection and backward selection) and LASSO regression. Empirically, we find that selected factors are dense instead of sparse in the stock market, the corporate bond market, and the options market. Joint paper with Chuanping Sun.