The benefits of tree-based models for stock selection
Zhu, Min, Philpotts, David, & Stevenson, Maxwell J. (2012) The benefits of tree-based models for stock selection. Journal of Asset Management.
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The identification of the primary drivers of stock returns has been of great interest to both financial practitioners and academics alike for many decades. Influenced by classical financial theories such as the CAPM (Sharp, 1964; Lintner, 1965) and APT (Ross, 1976), a linear relationship is conventionally assumed between company characteristics as derived from their financial accounts and forward returns. Whilst this assumption may be a fair approximation to the underlying structural relationship, it is often adopted for the purpose of convenience. It is actually quite rare that the assumptions of distributional normality and a linear relationship are explicitly assessed in advance even though this information would help to inform the appropriate choice of modelling technique. Non-linear models have nevertheless been applied successfully to the task of stock selection in the past (Sorensen et al, 2000). However, their take-up by the investment community has been limited despite the fact that researchers in other fields have found them to be a useful way to express knowledge and aid decision-making...
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|Item Type:||Journal Article|
|Subjects:||Australian and New Zealand Standard Research Classification > COMMERCE MANAGEMENT TOURISM AND SERVICES (150000)|
|Divisions:||Current > QUT Faculties and Divisions > QUT Business School|
Current > Schools > School of Economics & Finance
|Copyright Owner:||Copyright 2012 Palgrave Macmillan Ltd|
|Deposited On:||10 Oct 2012 09:40|
|Last Modified:||27 Mar 2013 20:13|
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