Publisher:
National Bureau of Economic Research, Cambridge, Mass
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...
more
ZBW - Leibniz-Informationszentrum Wirtschaft, Standort Kiel
Inter-library loan:
No inter-library loan
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 findings establish the rationale for modeling expected returns through machine learning
