Time:
Oct. 30(Friday), 8:30-10:00
Venue:
Zoom Conference ID: 635 4317 6839
Speaker:
Dacheng Xu, Professor of Econometrics and Statistics at the University of Chicago Booth School of Business
Summary:
We introduce a new text-mining methodology that extracts information from news articles to predict asset returns. Unlike more common sentiment scores used for stock return prediction (e.g., those sold by commercial vendors or built with dictionary-based methods), our supervised learning framework constructs a score that is specifically adapted to the problem of return prediction. Our method proceeds in three steps: 1) isolating a list of terms via predictive screening, 2) assigning prediction weights to these words via topic modeling, and 3) aggregating terms into an article-level predictive score via penalized likelihood. We derive theoretical guarantees on the accuracy of estimates from our model with minimal assumptions. In our empirical analysis, we study one of the most actively monitored streams of news articles in the financial system--the Dow Jones Newswires--and show that our supervised text model excels at extracting return-predictive signals in this context. Information in newswires is assimilated into prices with an ineffcient delay that is broadly consistent with limits-to-arbitrage (i.e., more severe for smaller and more volatile firms) yet can be exploited in a real-time trading strategy with reasonable turnover and net of transaction costs.
Brief introduction of the speaker:
Dacheng Xiu is Professor of Econometrics and Statistics at the University of Chicago Booth School of Business. His current research focuses on developing machine learning solutions to big-data problems in empirical finance. Xiu’s work has appeared in the Journal of Finance, Review of Financial Studies, Econometrica, the Journal of the American Statistical Association, the Annals of Statistics, etc. He is a Co-Editor for the Journal of Financial Econometrics, an Associate Editor for the Journal of Econometrics, the Journal of Business & Economic Statistics, Management Science, etc. He has received several recognitions for his research, including the Fellow of the Society for Financial Econometrics, Fellow of the Journal of Econometrics, the AQR Insight Award, the Swiss Finance Institute Outstanding Paper Award, etc. Xiu earned his PhD and MA in applied mathematics from Princeton University.
