IFin Seminar, IFin Seminar - Semyon Malamud, EPFL "The Virtue of Complexity in Return Prediction"
Institute of Finance
Date: 17 November 2022 / 12:25 - 13:40
Seminar Speaker Semyon Malamud, EPFL
Seminar Title: "The Virtue of Complexity in Return Prediction"
Time: 12:25 - 13:40
Room: A-23 (red building)
USI West Campus
Much of the extant literature predicts market returns with \simple" models that use only a few parameters. Contrary to conventional wisdom, we theoretically prove that simple models severely understate return predictability compared to "complex" models in which the number of parameters exceeds the number of observations. We empirically document the virtue of complexity in US equity market return prediction. Our fundings establish the rationale for modeling expected returns through machine learning.