This paper surveys the recent advances in machine learning method for economic forecasting. The survey covers the following topics: nowcasting, textual data, panel and tensor data, high-dimensional Granger causality tests, time series cross-validation, classification with economic losses.
Research from UNC Kenan-Flagler Finance Professor Eric Ghysels attaches explicit costs to a model’s classification errors, in this case concerning pretrial detention decisions, avoiding the one-size-fits-all symmetrical cost function of traditional machine learning.
George Floyd's murder caused many firms to reveal how exposed they are to racial diversity issues. We examine investor and firm behaviors after this socially significant event to provide evidence on the valuation effects of the exposure and ensuing corporate responses. We develop a text-based measure of a firm's exposure to racial diversity issues from conference call transcripts and find that, after the murder of George Floyd, firms with diversity exposure experience a stock price decrease of approximately 0.7% around the date of the conference call. We provide evidence that this effect is attributable to race-related exposure and not gender-related exposure. Initiatives taken by firms mitigate the negative market reaction.
We examine firm disclosure choice during the initial public offering (IPO) roadshow presentation to understand the informativeness of a management presentation designed to attract investors. Although firms submit a comprehensive registration filing during the IPO, managers also prepare a roadshow presentation, which is shorter and typically allows managers more autonomy to select the information released and how it is discussed. We find that IPO roadshows have significantly more positive, less negative, and less uncertain language than the SEC filing.
Responsive to calls from lawmakers, the USPTO has recently announced a broad set of measures to increase the quality of drug patents ex ante, before they are granted, as a way of in the US. However, there is currently no way to tell which patent applications cover inventions that will lead to FDA-approved drugs, potentially compromising the efficiency and effectiveness of the agency’s efforts. We address these informational deficits predictively and descriptively through an analysis of patents issued in 2005-2015 that cover drugs as identified through their listing in the FDA’s “Orange Book.”
Reliably detecting insider trading is a major impediment to both research and regulatory practice. Using account-level transaction data, we propose a novel approach. Specifically, after extracting several key empirical features of typical insider trading cases from existing regulatory actions, we then employ a machine learning methodology to identify suspicious insiders across our full sample.
This paper uses structured machine learning regressions for nowcasting with panel data consisting of series sampled at different frequencies. Motivated by the problem of predicting corporate earnings for a large cross-section of firms with macroeconomic, financial, and news time series sampled at different frequencies, we focus on the sparse-group LASSO regularization which can take advantage of the mixed frequency time series panel data structures.
Join us to hear from Seth Lloyd, Professor of Mechanical Engineering and Physics at MIT, as he shares his findings on quantum algorithms for analyzing financial data and predicting time series
Join our panel of experts who will share their technological, legal and social expertise to answer the questions raised by the real-world performance of risk assessment instruments.
A large body of social science evidence indicates that objective, reliable and valid risk assessment instruments are more accurate in evaluating risk than professional human judgements alone. In the world of pretrial detention, where more than 10 million people are jailed each year in the United States after arrest, pretrial risk assessment tools may provide a more efficient, transparent and fairer basis for making assessments than having a judge quickly scan documents detailing the defendant’s prior record and current charges and make a decision in mere minutes. However, these assessments will retain any bias present in the data used by criminal justice agencies.
Corporate executives have begun to glimpse the strategic value of incorporating artificial intelligence as an “employee” within their organization. In this Kenan Insight, we explore a framework that outlines the critical elements for harnessing the potential of human-AI working relationships.
The Kenan Institute of Private Enterprise at the University of North Carolina at Chapel Hill will host a virtual conference on machine learning in finance on March 5, 2021. The conference is co-sponsored by the Journal of Financial Econometrics (JFEC) and the International Center for Finance (ICF) at Yale University.