Bellwether Trades: Characteristics of Trades influential in Predicting Future Price Movements in Markets

In this study, we leverage powerful non-linear machine learning methods to identify the characteristics of trades that contain valuable information. First, we demonstrate the effectiveness of our optimized neural network predictor in accurately predicting future market movements. Then, we utilize the information from this successful neural network predictor to pinpoint the individual trades within each data point (trading window) that had the most impact on the optimized neural network's prediction of future price movements. This approach helps us uncover important insights about the heterogeneity in information content provided by trades of different sizes, venues, trading contexts, and over time.

K-ARMA Models for Clustering Time Series Data

We present an approach to clustering time series data using a model-based generalization of the K-Means algorithm which we call K-Models. We prove the convergence of this general algorithm and relate it to the hard-EM algorithm for mixture modeling. We then apply our method first with an AR($p$) clustering example and show how the clustering algorithm can be made robust to outliers using a least-absolute deviations criteria. We then build our clustering algorithm up for ARMA($p,q$) models and extend this to ARIMA($p,d,q$) models. We develop a goodness of fit statistic for the models fitted to clusters based on the Ljung-Box statistic. We perform experiments with simulated data to show how the algorithm can be used for outlier detection, detecting distributional drift, and discuss the impact of initialization method on empty clusters. We also perform experiments on real data which show that our method is competitive with other existing methods for similar time series clustering tasks.

Interpretable Latent Variables in Deep State Space Models

We introduce a new version of deep state-space models (DSSMs) that combines a recurrent neural network with a state-space framework to forecast time series data. The model estimates the observed series as functions of latent variables that evolve non-linearly through time. Due to the complexity and non-linearity inherent in DSSMs, previous works on DSSMs typically produced latent variables that are very difficult to interpret. Our paper focus on producing interpretable latent parameters with two key modifications. First, we simplify the predictive decoder by restricting the response variables to be a linear transformation of the latent variables plus some noise. Second, we utilize shrinkage priors on the latent variables to reduce redundancy and improve robustness. These changes make the latent variables much easier to understand and allow us to interpret the resulting latent variables as random effects in a linear mixed model. We show through two public benchmark datasets the resulting model improves forecasting performances.

Clustering Structure of Microstructure Measures

This paper builds the clustering model of measures of market microstructure features which are popular in predicting the stock returns. In a 10-second time frequency, we study the clustering structure of different measures to find out the best ones for predicting. In this way, we can predict more accurately with a limited number of predictors, which removes the noise and makes the model more interpretable.

A News-based Machine Learning Model for Adaptive Asset Pricing

The paper proposes a new asset pricing model -- the News Embedding UMAP Selection (NEUS) model, to explain and predict the stock returns based on the financial news. Using a combination of various machine learning algorithms, we first derive a company embedding vector for each basis asset from the financial news. Then we obtain a collection of the basis assets based on their company embedding. After that for each stock, we select the basis assets to explain and predict the stock return with high-dimensional statistical methods. The new model is shown to have a significantly better fitting and prediction power than the Fama-French 5-factor model.

Time-Invariance Coefficients Tests with the Adaptive Multi-Factor Model

The purpose of this paper is to test the multi-factor beta model implied by the generalized arbitrage pricing theory (APT) and the Adaptive Multi-Factor (AMF) model with the Groupwise Interpretable Basis Selection (GIBS) algorithm, without imposing the exogenous assumption of constant betas. The intercept (arbitrage) tests validate both the AMF and the Fama-French 5-factor (FF5) model. We do the time-invariance tests for the betas for both the AMF model and the FF5 in various time periods. We show that for nearly all time periods with length less than 6 years, the beta coefficients are time-invariant for the AMF model, but not the FF5 model. The beta coefficients are time-varying for both AMF and FF5 models for longer time periods. Therefore, using the dynamic AMF model with a decent rolling window (such as 5 years) is more powerful and stable than the FF5 model.

Hierarchical Adaptive Lasso: Learning Sparse Neural Networks with Shrinkage via Single Stage Training

Deep neural networks achieve state-of-the-art performance in a variety of tasks, however this performance is closely tied to model size. Sparsity is one approach to limiting model size. Modern techniques for inducing sparsity in neural networks are (1) network pruning, a procedure involving iteratively training a model initialized with a previous run's weights and hard thresholding, (2) training in one-stage with a sparsity inducing penalty (usually based on the Lasso), and (3) training a binary mask jointly with the weights of the network. In this work, we study different sparsity inducing penalties from the perspective of Bayesian hierarchical models with the goal of designing penalties which perform well without retraining subnetworks in isolation. With this motivation, we present a novel penalty called Hierarchical Adaptive Lasso (HALO) which learns to adaptively sparsify weights of a given network via trainable parameters without learning a mask. When used to train over-parametrized networks, our penalty yields small subnetworks with high accuracy (winning tickets) even when the subnetworks are not trained in isolation. Empirically, on the CIFAR-100 dataset, we find that HALO is able to learn highly sparse network (only $5\%$ of the parameters) with approximately a $2\%$ and $4\%$ gain in performance over state-of-the-art magnitude pruning methods at the same level of sparsity.

Robust Matrix Completion with Mixed Data Types

We consider the matrix completion problem of recovering a structured low rank matrix with partially observed entries with mixed data types. Vast majority of the solutions have proposed computationally feasible estimators with strong statistical guarantees for the case where the underlying distribution of data in the matrix is continuous. A few recent approaches have extended using similar ideas these estimators to the case where the underlying distributions belongs to the exponential family. Most of these approaches assume that there is only one underlying distribution and the low rank constraint is regularized by the matrix Schatten Norm. We propose a computationally feasible statistical approach with strong recovery guarantees along with an algorithmic framework suited for parallelization to recover a low rank matrix with partially observed entries for mixed data types in one step. We also provide extensive simulation evidence that corroborate our theoretical results.

Low-volatility Anomaly and the Adaptive Multi-Factor Model

The paper explains the low-volatility anomaly from a new perspective. We use the Adaptive Multi-Factor (AMF) model estimated by the Groupwise Interpretable Basis Selection (GIBS) algorithm to find the basis assets significantly related to each of the portfolios. The AMF results show that the two portfolios load on very different factors, which indicates that the volatility is not an independent measure of risk, but are related to the basis assets and risk factors in the related industries. It is the performance of the loaded factors that results in the low-volatility anomaly. The out-performance of the low-volatility portfolio may not because of its low-risk (which contradicts the risk-premium theory), but because of the out-performance of the risk factors the low-volatility portfolio is loaded on. Also, we compare the AMF model with the traditional Fama-French 5-factor (FF5) model in various aspects, which shows the superior performance of the AMF model over FF5 in many perspectives.

Fairness criteria through the lens of directed acyclic graphical models

A substantial portion of the literature on fairness in algorithms proposes, analyzes, and operationalizes simple formulaic criteria for assessing fairness. Two of these criteria, Equalized Odds and Calibration by Group, have gained significant attention for their simplicity and intuitive appeal, but also for their incompatibility. This chapter provides a perspective on the meaning and consequences of these and other fairness criteria using graphical models which reveals Equalized Odds and related criteria to be ultimately misleading. An assessment of various graphical models suggests that fairness criteria should ultimately be case-specific and sensitive to the nature of the information the algorithm processes.