Choices Matter When Training Machine Learning Models for Return Prediction

Applying machine learning to cross-sectional stock return prediction requires careful consideration of modeling choices. Common approaches that fail to account for heterogeneity or imbalanced stock representation in training data can lead to suboptimal performance. I study two strategies to address these issues: training group-specific models and predicting relative returns. Both approaches yield similar economic improvements over models trained on the full cross-section of US stock returns, with value-weighted trading strategies benefiting significantly. The findings underscore the importance of aligning machine learning modeling decisions with desired economic outcomes and provide guidance for researchers and practitioners seeking robust machine learning models.

Authors

Institutions

Publication Details

Journal
Financial Analysts Journal
Published
2024-08-29
DOI
https://doi.org/10.1080/0015198x.2024.2388024
Citations
6
Primary Topic
Stock Market Forecasting Methods
Type
article
Field-Weighted Citation Impact
2.94
Controls
|||
ALL TIME
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
article

Choices Matter When Training Machine Learning Models for Return Prediction

Clint Howard
6 citations
Financial Analysts Journal
Stock Market Forecasting Methods
2.94
article

Choices Matter When Training Machine Learning Models for Return Prediction

Clint Howard
article en
6 citations

Abstract

Applying machine learning to cross-sectional stock return prediction requires careful consideration of modeling choices. Common approaches that fail to account for heterogeneity or imbalanced stock representation in training data can lead to suboptimal performance. I study two strategies to address these issues: training group-specific models and predicting relative returns. Both approaches yield similar economic improvements over models trained on the full cross-section of US stock returns, with value-weighted trading strategies benefiting significantly. The findings underscore the importance of aligning machine learning modeling decisions with desired economic outcomes and provide guidance for researchers and practitioners seeking robust machine learning models.

Financial Analysts JournalVol. 80(4)
Schlumberger (Ireland) (IE)
Openalex Percentile: Top 9%
Stock Market Forecasting Methods
2.94
AI Navigator

Ask Laika to Summarize, Analyze, and Connect papers live on the map.

Summarize Papers & Methodologies

Extract key findings, datasets, and comparative methods across publications.

Benchmark Rankings & Visual Analytics

Rank top research institutions, authors, funders, topics, and journals by Field-Weighted Citation Impact (FWCI) and paper volume with instant charts.

Connect Distant Disciplines

Bridge topological clusters on the map to find hidden collaborative intersections.