We show how to build a cross-section of asset returns, that is, a small set of basis or test assets that capture complex information contained in a given set of stock characteristics and span the Stochastic Discount Factor (SDF). We use decision trees to generalize the concept of conventional...

We use multivariate random forests to compute out-of-sample forecasts of a vector of returns of four precious metal prices (gold, silver, platinum, and palladium). We compare the multivariate forecasts with univariate out-of-sample forecasts implied by random forests independently fitted to...

We examine whether investors efficiently incorporate the effect of financial sector shocks into the equity prices of non-financial firms. Shocks to the financial sector are complex macroeconomic events affecting many firms to varying degrees. Prices may adjust slowly in response to financial...