GraphVAE: Unveiling Dynamic Stock Relationships with Variational Autoencoder-based Factor Modeling

Factor models, originating in finance for asset pricing, are fundamental tools in quantitative investment. Recently, there has been a trend towards adopting more flexible machine learning approaches instead of previous linear models. However, traditional factor models and recent deep learning approaches either overlook the relationships among stocks or rely on static, predefined ones, which hampers their representational power and hinders their ability to dynamically adapt to market changes. To overcome this limitation, we introduce a novel dynamic factor model named GraphVAE. This model leverages temporal adaptive dynamic stock relationship graphs, facilitating improved information transfer among stocks within the dynamic probabilistic factor model. Experimental results on three real stock market datasets demonstrate that our method outperforms various state-of-the-art approaches.