This paper evaluates the predictive performance of machine learning methods in forecasting European stock returns. Compared to a linear benchmark model, interactions and nonlinear effects help improve the predictive performance. But machine learning models must be adequately trained and tuned to...

This paper shows that low-risk stocks significantly outperform high-risk stocks in the local China A-share market. The main driver of this low-risk anomaly is volatility, and not beta. A Fama–French style VOL factor is not explained by the Fama–French–Carhart factors, and has the strongest...

Studies show the inconclusive results regarding the relation between corporate social and environmental responsibility (CSR and CER) and expected returns. We argue that the reason for these mixed results is that the sustainability premium (i.e., the return difference of high-intensity minus...

Despite extensive research support, the role of diversification in current factor investing strategies remains neglected. This paper investigates whether well-designed multifactor portfolios should not only be based on firm characteristics, but should also include portfolio diversification...

Combining market data with a publicly available monthly snapshot of Deutsche Börse’s index ranking list, I create a model that predicts index changes in the DAX, MDAX, SDAX, and TecDAX from 2010 to 2019 before they are officially announced. Even though I empirically show that index changes...

Enhanced machine learning methods provide an encouraging alternative to forecast asset prices by extending or generalizing the possible model specifications compared to conventional linear regression methods. Even if enhanced methods of machine learning in the literature often lead to better...

The European Commission has proposed establishing a framework that redirects capital to sustainable investments in order to foster sustainable economic growth. A key proposal from this framework is the mandatory consideration of environmental criteria for investment decisions. However, in...

In a recent discussion about efficient ways to combine multiple firm characteristics into a multifactor portfolio, a distinction was made between the bottom-up and top-down approach. Both approaches integrate characteristics with equal weights and ignore interaction effects from differences in...