1. Introduction In my paper Feature Selection Risk (2014), I study a problem where assets have $Q \gg 1$ different attributes and traders try to identify which $K \ll Q$ of these attributes matter via price changes: \begin{align} \Delta p_n &= … [Continue reading]

# Intra-Industry Lead-Lag Effect

1. Introduction Hou (2007) documents a really interesting phenomenon in asset markets. Namely, if the largest securities in an industry as measured by market capitalization perform really well in the current week, then the smallest securities in … [Continue reading]

# Investigation Bandwidth

1. Motivation Time is dimensionless in modern asset pricing theory. e.g., the canonical Euler equation: \begin{align} P_t &= \widetilde{\mathrm{E}}_t[ \, P_{t+1} + D_{t+1} \, ] \label{eqn:euler} \end{align} says that the price of an asset at … [Continue reading]

# The Secrets N Prices Keep

1. Introduction Prices are signals about shocks to fundamentals. In a world where there are many stocks and lots of different kinds of shocks to fundamentals, traders are often more concerned with identifying exactly which shocks took place than … [Continue reading]

# How Quickly Can We Decipher Price Signals?

1. Introduction There are many different attribute-specific shocks that might affect an asset's fundamental value in any given period. e.g., the prices of all stocks held in model-driven long/short equity funds might suddenly plummet as happened … [Continue reading]