Didisheim, Antoine; Ke, Shikun; Kelly, Bryan T.; … - 2023
We theoretically characterize the behavior of machine learning asset pricing models. We prove that expected out …-of-sample model performance—in terms of SDF Sharpe ratio and average pricing errors—is improving in model parameterization (or … “complexity”). Our results predict that the best asset pricing models (in terms of expected out-of-sample performance) have an …