Job Market Paper
"A Bankruptcy Risk Factor" [SSRN]
Abstract: This paper introduces a factor based on an estimated probability of bankruptcy - a measure of the risk a typical investor will lose their investment, or the cost of insuring that investment. Using an underlying model of firm bankruptcy built as a sequence of two random forests, I demonstrate my bankruptcy risk factor has predictive power in equity, bond, option and credit default swap markets earning statistically significant monthly returns of 0.23%, 0.15%, 1.97% and 1.04%, respectively, in all four markets. In markets with existing common factors I find statistically significant alpha with respect to these factors.
"Economic Models or Machine Learning Techniques? Evidence from Asset Pricing Models" [Submitted] [SSRN]
Abstract: Previous comparisons of econometric and machine learning asset pricing models have focused on statistical measures such as the r-squared. In this paper I compare popular machine learning models with traditional factor models using the level of mispricing, as measured by the model's alpha, as the primary evaluation metric. In making this comparison I highlight where machine learning models cannot be implemented in the traditional asset pricing framework. For comparison to previous studies I also compare models based on forecast accuracy as measured by the out-of-sample r-squared. Using the 30 industry portfolios as test assets traditional factor models achieve smaller levels of mispricing and more accurate forecasts of asset returns. The benefits of deep learning recently documented in the literature appear limited to test assets with highly nonlinear returns.
Select Non-Peer Reviewed Research
"Yield Predictions for New Jersey's Fiscal 2021 Bond Issues" - with Bruce Mizrach [ResearchGate]
"The Demise of the Mega Malls: A View from the Bond Market" - with Max Miller and Bruce Mizrach [ResearchGate]
"Revenue Predictions for the New Jersey Shore" - with Max Miller and Bruce Mizrach [ResearchGate]