Deep Learning in Asset Pricing Chen, Luyang; Pelger, Markus; Zhu, Jason
Management science,
02/2024, Volume:
70, Issue:
2
Journal Article
Peer reviewed
Open access
We use deep neural networks to estimate an asset pricing model for individual stock returns that takes advantage of the vast amount of conditioning information, keeps a fully flexible form, and ...accounts for time variation. The key innovations are to use the fundamental no-arbitrage condition as criterion function to construct the most informative test assets with an adversarial approach and to extract the states of the economy from many macroeconomic time series. Our asset pricing model outperforms out-of-sample all benchmark approaches in terms of Sharpe ratio, explained variation, and pricing errors and identifies the key factors that drive asset prices.
This paper was accepted by Agostino Capponi, finance.
Supplemental Material:
The online appendix and data are available at
https://doi.org/10.1287/mnsc.2023.4695
.
Bus rapid transit (BRT) systems have mushroomed worldwide in the last few decades. An enriched understanding of BRT capitalization effects is essential. Although the BRT accessibility effect on ...housing prices has been extensively explored, the effect of proximity to the BRT corridor (which may be related to unattractive landscape and noise pollution) has been little scrutinized. More importantly, whether and how the two effects vary across price levels and space have yet to be sufficiently studied. To this end, we estimate the effect of BRT accessibility and proximity on housing prices by applying a battery of econometric methods (including hedonic pricing models, spatial regression models, quantile regression models, and a geographically weighted regression model) to 5185 observations in the housing market in Xiamen Island, China. The results of this study are: (1) BRT accessibility premiums and proximity penalties simultaneously exist in the housing market; (2) buyers of high-priced housing have a greater willingness to pay for avoiding the nuisances attributed to proximity to the BRT corridor; (3) the effect of BRT on housing prices is spatially heterogeneous; (4) the BRT accessibility effect is larger in suburban areas than in urban areas; and (5) housing prices are more predictable near the city centers than outside the area, which may be because a greater proportion of the price of a house near the city centers is derived from the location (rather than the building structure). Finally, policy implications (e.g., building acoustic barriers and planting vegetation along the BRT corridor and improving the transit service in suburban areas) are discussed.
Dynamic pricing techniques allow using a number of variables in a tactical way compared to standard catalogue prices. This study merges in a conceptual model the relevance of the tactical and the ...strategic dimension of these variables, classified according to their tangible, reputational or contextual nature.
To empirically validate the hypotheses, a database of 21.596 price observations was retrieved from booking.com. The study presents a hedonic price function, using the Shapley-Owen decomposition of the R-squared to elicit the importance of each group of factors. Further, a hierarchical cluster analysis measures the presence of heterogeneity across operators.
The results show that online reputation is gaining importance over the traditional star rating. Despite the tangible variables remain of paramount importance, the findings suggest the relevant role of contextual variables in short-run price variations. The players operating in the tourism and hospitality industries should integrate these findings when designing pricing strategies.
•The study proposes and empirically validates a dynamic pricing framework.•Three groups of factors are identified in their strategic and tactic dimensions.•The Shapley-Owen decomposition of R-squared is applied to price regression models.•Results allow measuring the relative weight of pricing determinants.•Contextual variables have a relevant role in short-run price variations.
Pembangunan kawasan perumahan menjadi primadona di Kota Depok mengingat letaknya yang strategis sebagai kota satelit Jakarta dengan fasilitas yang relatif memadai. Sebagai dampaknya, terjadi lonjakan ...penduduk yang terus meningkat. Hal ini kemudian berujung pada peningkatan harga jual rumah yang tidak terkendali dengan wajar. Penelitian ini bertujuan untuk mengungkap faktor-faktor penentu harga jual rumah dan memberikan arahan spasial terkait pengendalian harga jual rumah di Kota Depok. Metode regresi Ordinary Least Square (OLS) dan Geographically Weighted Regression (GWR) digunakan untuk menjawab tujuan tersebut. Hasil analisis regresi OLS mengungkapkan bahwa dimensi struktural dan atribut lokasi fasilitas memberikan pengaruh yang signifikan terhadap penentuan harga jual rumah. Selain itu, hasil analisis GWR mengungkapkan bahwa atribut lokasi fasilitas berupa jarak ke Central Business District (CBD) Jakarta dinilai dapat berperan efektif sebagai instrumen pengendali harga jual rumah demi pemanfaatan ruang berkelanjutan di Kota Depok.
•To-bus accessibility and by-bus accessibility significantly affect housing prices in the bus-dependent city.•Spatial heterogeneity exists in the price effects of bus accessibility.•Bus frequency ...exerts a larger price effect in the peripheral area than in the central.
Accessibility to transit facilities is perceived to affect property prices. However, accessibility by transit has rarely elicited adequate scholarly attention in property price analyses. Additionally, previous studies on how transit accessibility affects property prices mainly focused on rail and bus rapid transit systems, while conventional bus transit, which is very popular in many contexts, has seldom been investigated. Moreover, whether there is spatial heterogeneity in the price (or capitalization) effects of conventional bus accessibility remains to be explored. To fill these gaps, this study aims to investigate the role of accessibility to and by bus in determining housing prices in a bus-dependent city where urban transit service is offered mainly by a bus system rather than other transit systems. Using a database of 4966 condominium units in Xiamen, China, this study develops a battery of spatial econometric models to estimate global and local relationships between to-bus and by-bus accessibility and housing prices. The findings are as below: (1) to-bus accessibility (measured by the number of nearby bus stops) is positively associated with nearby housing prices; (2) by-bus accessibility (measured by travel time to city centers by bus and bus frequency) significantly affects nearby housing prices; (3) spatial heterogeneity exists in the price effects of bus accessibility; and (4) bus frequency exerts a larger price effect in the peripheral area than in the central. Finally, practical and policy implications are discussed.
Relief material management which aims to reduce the impact of disaster and maintain social stability is of great importance for nonprofit organization (NPO) such as government, department of civil ...affair or Red Cross. However, the research of efficiency and performance on this field has long been ignored. In order to improve the efficiency and performance of the relief material management, we apply the supply chain management method into this field. Considering the relief material management system as a supply chain with one buyer and one supplier, we introduce the option contract mechanism into relief material supply chain management. With reasonable assumptions, we design an option contract with two delivery steps, and build an option pricing model with binominal lattice to estimate the different values of the same option contract for both members of supply chain. Furthermore, we analyze the impacts of the different parameters (such as the ratio of inventory, subjective probability of disaster, etc.), on the supply chain and its members in detail. The numerical example presented at last demonstrates that, with two delivery steps, there is a feasible price range of option contract which makes both members of relief material supply chain profitable and willing to conduct the transaction with option contract.
► Introduce option contract as a risk management tool into relief material management. ► Take into account price fluctuation and risk-free interest rate in option pricing model. ► Propose a two steps delivery process to further reduce the risk and inventory cost. ► Provide the feasible set of option contract which be in the interest of both members.
Existing studies have yet reached consistent conclusions on accessibility benefits of buses. Most existing studies have been conducted in the context of the West, where bus patronage is generally ...low. In this study, we used a database of 22,586 secondhand residential properties in 358 residential estates in Xiamen, China to develop four non-spatial hedonic pricing models (one standard and three Box-Cox transformed) and two spatial econometric models to quantify the effects of bus accessibility on property prices and analyze how the introduction of spatial econometric models would influence estimates of such benefits. Our findings are as follows. (1) Access to bus stops is positively correlated with property prices. This outcome is in contrast with findings of mainstream research (or conventional wisdom). For every bus stop within 500 m, the price of a property is 0.5% higher, all else being equal. (2) Bus travel times to essential destinations significantly influence housing prices. (3) Spatial econometric models that account for spatial autocorrelation outperform traditional hedonic pricing models. A few robustness check analyses further guarantee the plausibility of this study. However, the price premiums offered by bus accessibility may be gradually decreased, even eventually discarded, because of declining attractiveness for bus travel and continuous transit service enhancement in the forthcoming years.
•Add an empirical study on pricing bus accessibility in a bus-served city in China•Decompose bus accessibility into local (to-bus) and regional (by-bus) accessibility•Gain a deeper understanding of the benefits arising from local and regional bus accessibility•Offer insights for value capture schemes of financing bus investments
Most existing literature has ignored the potential effects that color intensity may have on art prices (bearing a few recent exceptions). We examine 1627 paintings executed by the “Big five” Latin ...American artists (Rivera, Tamayo, Lam, Matta, and Botero), and sold at Sotheby’s and Christie’s between 2003 and 2017, to analyze this impact. We find strong evidence indicating that paintings that are more intense in color fetch higher prices, but only up to a certain degree (paintings whose color is “too intense”, “too vivid” or “too dark” actually fetch lower prices). To the best of our knowledge, these results are the first to confirm, for the case of the art market, early experimental evidence in the psychology literature pointing to the existence of an inverse “u” pattern on the preferences for color intensity. Our findings have implications for other areas such as psychology and consumer behavior.
Most single-factor and multifactor asset pricing models constitute special cases of the consumption-based asset pricing theory, in which investors' marginal utility is the key determinant of asset ...prices. However, in recent years, production-based asset pricing models have been extraordinarily successful in correctly pricing a wide range of anomaly portfolios that are typically mispriced in previous research. In parallel, research on conditioning information has contributed to significantly improve the performance of classic consumption-based asset pricing models. On this basis, in this paper we conduct an in-depth research on the performance of consumption and production-based asset pricing models on the Tokyo Stock Exchange, for the period from 1992 to 2018, in order to test to what extent consumer confidence helps consumption models to correctly capture shifts in the investment opportunity set of investors. To overcome the constraints imposed by the periodicity of macroeconomic data, we use a factor-mimicking portfolio approach that allows us to test the performance of the models into consideration at different frequencies. Our results suggest that the consumer confidence index for Japan helps consumption-based asset pricing models outperform production-based models for different anomaly portfolios. Conversely, in those cases where consumption models perform worse, the production models also perform poorly. These results help to partially reconcile the results provided by the consumption and production models, and constitute a step forward for the purpose of identifying the fundamental risk factors that drive asset prices.
This study examines the role of global oil price uncertainty in the cross-sectional pricing of individual stocks in the Chinese stock market, motivated by the intertemporal capital asset pricing ...model. Using both Fama-Macbeth regressions and multifactor time-series regressions, we find that stocks with higher oil price uncertainty betas have significantly lower expected returns. This finding is consistent with the asset pricing implications of the demand of investors for stocks with high potential to hedge against oil price uncertainty. We further conduct an industry analysis and find that the negative association between the oil price uncertainty beta and expected returns is pronounced, primarily in the Manufacturing and Transportation & Communication industries. Moreover, we demonstrate that the return predictability of the oil price uncertainty beta cannot be subsumed by those of other oil-related betas and well-known macro-uncertainty betas, thus supporting that global oil price uncertainty is an independent source of systematic risk in the Chinese stock market.
•Oil price uncertainty beta negatively and prominently predicts future stock returns.•The negative beta-return relation is consistent with intertemporal hedging demand.•Oil price uncertainty is an independent source of systematic risk in China.•Oil price uncertainty has a prominent pricing implication in the Chinese market.
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