We investigate the causal structure of financial systems by accounting for contemporaneous relationships. To identify structural parameters, we introduce a novel non-parametric approach that exploits the fact that most financial data empirically exhibit heteroskedasticity. The identification...

Regressions often use pre-orthogonalized regressors. For example, the exposure of a stock's return to exchange-rate changes is conventionally estimated by regression, and often, the market return is included as an additional regressor. By first orthogonalizing the market return on the exchange...

In this paper, I interpret a time series spatial model (T-SAR) as a constrained Structural Vector Autoregressive (SVAR) model. Based on these restrictions, I propose a Minimum Distance approach to estimate the (row-standardized) network matrix and the overall network influence parameter of the...

In this paper, I interpret a time series spatial model (T-SAR) as a constrained Structural Vector Autoregressive (SVAR) model. Based on these restrictions, I propose a Minimum Distance approach to estimate the (row-standardized) network matrix and the overall network influence parameter of the...

Contrary to conventional wisdom in nance, return prediction R2 and optimal portfolio Sharpe ratio generally increase with model parameterization, even when minimal regularization is used. We theoretically characterize the behavior of return prediction models in the high complexity regime, i.e....

We propose a new asset-pricing framework in which all securities' signals are used to predict each individual return. While the literature focuses on each security's own- signal predictability, assuming an equal strength across securities, our framework is flexible and includes...

We investigate the causal structure of financial systems by accounting for contemporaneous relationships. To identify structural parameters, we introduce a novel non-parametric approach that exploits the fact that most financial data empirically exhibit heteroskedasticity. The identification...

In this replication paper, we extend Kelly, Malamud, and Pedersen (2021)'s new asset pricing framework to allow incorporating multiple predictive signals into optimal principal portfolios. Empirically, we find that the multi-signal theory is valuable for combining signals, improving a naive...

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...

We investigate the performance of non-linear return prediction models in the high complexity regime, i.e., when the number of model parameters exceeds the number of observations. We document a "virtue of complexity" in all asset classes that we study (US equities, international equities, bonds,...