In quantitative investing, return prediction supports various tasks, including stock selection, portfolio optimization, and risk management. Quantitative factors, such as valuation, quality, and growth, capture various characteristics of stocks. Unstructured data, like news and transcripts, has attracted growing attention, driven by recent advances in large language models (LLMs). This paper examines effective methods for leveraging multimodal factors and newsflow in return prediction and stock selection. First, we introduce a fusion learning framework to learn a unified representation from factors and newsflow representations generated by an LLM. Within this framework, we compare three methods of different architectural complexities: representation combination, representation summation, and attentive representations. Next, building on the limitation of fusion learning observed in empirical comparison, we explore the mixture model that adaptively combines predictions made by single modalities and their fusion. To mitigate the training instability of the mixture model, we introduce a decoupled training approach with theoretical insights. Finally, our experiments on real investment universes yield several insights into effective multimodal modeling of factors and news for stock return prediction and selection.

We use multi-class machine learning classifiers to identify the stocks that outperform or underperform other stocks. The resulting long-short portfolios achieve annual Sharpe ratios of 1.67 (value-weighted) and 3.35 (equal-weighted), with annual alphas ranging from 29\% to 48\%. These results persist after controlling for machine learning regressions and remain robust among large-cap stocks. Machine uncertainty, as measured by predicted probabilities, impairs the prediction performance. Stocks with higher machine uncertainty experience lower returns, particularly when human proxies of information uncertainty align with machine uncertainty. Consistent with the literature, such an effect is driven by the past underperformers.

In this paper we investigate the application of quantum and quantum-inspired machine learning algorithms to stock return predictions. Specifically, we evaluate performance of quantum neural network, an algorithm suited for noisy intermediate-scale quantum computers, and tensor network, a quantum-inspired machine learning algorithm, against classical models such as linear regression and neural networks. To evaluate their abilities, we construct portfolios based on their predictions and measure investment performances. The empirical study on the Japanese stock market shows the tensor network model achieves superior performance compared to classical benchmark models, including linear and neural network models. Though the quantum neural network model attains the lowered risk-adjusted excess return than the classical neural network models over the whole period, both the quantum neural network and tensor network models have superior performances in the latest market environment, which suggests capability of model's capturing non-linearity between input features.

Traditional machine learning methods have been widely studied in financial innovation. My study focuses on the application of deep learning methods on asset pricing. I investigate various deep learning methods for asset pricing, especially for risk premia measurement. All models take the same set of predictive signals (firm characteristics, systematic risks and macroeconomics). I demonstrate high performance of all kinds of state-of-the-art (SOTA) deep learning methods, and figure out that RNNs with memory mechanism and attention have the best performance in terms of predictivity. Furthermore, I demonstrate large economic gains to investors using deep learning forecasts. The results of my comparative experiments highlight the importance of domain knowledge and financial theory when designing deep learning models. I also show return prediction tasks bring new challenges to deep learning. The time varying distribution causes distribution shift problem, which is essential for financial time series prediction. I demonstrate that deep learning methods can improve asset risk premium measurement. Due to the booming deep learning studies, they can constantly promote the study of underlying financial mechanisms behind asset pricing. I also propose a promising research method that learning from data and figuring out the underlying economic mechanisms through explainable artificial intelligence (AI) methods. My findings not only justify the value of deep learning in blooming fintech development, but also highlight their prospects and advantages over traditional machine learning methods.

Stock trend forecasting has become a popular research direction that attracts widespread attention in the financial field. Though deep learning methods have achieved promising results, there are still many limitations, for example, how to extract clean features from the raw stock data. In this paper, we introduce an \emph{Augmented Disentanglement Distillation (ADD)} approach to remove interferential features from the noised raw data. Specifically, we present 1) a disentanglement structure to separate excess and market information from the stock data to avoid the two factors disturbing each other's own prediction. Besides, by applying 2) a dynamic self-distillation method over the disentanglement framework, other implicit interference factors can also be removed. Further, thanks to the decoder module in our framework, 3) a novel strategy is proposed to augment the training samples based on the different excess and market features to improve performance. We conduct experiments on the Chinese stock market data. Results show that our method significantly improves the stock trend forecasting performances, as well as the actual investment income through backtesting, which strongly demonstrates the effectiveness of our approach.

Online shopping caters to the needs of millions of users daily. Search, recommendations, personalization have become essential building blocks for serving customer needs. Efficacy of such systems is dependent on a thorough understanding of products and their representation. Multiple information sources and data types provide a complete picture of the product on the platform. While each of these tasks shares some common characteristics, typically product embeddings are trained and used in isolation. In this paper, we propose a framework to combine multiple data sources and learn unified embeddings for products on our e-commerce platform. Our product embeddings are built from three types of data sources - catalog text data, a user's clickstream session data and product images. We use various techniques like denoising auto-encoders for text, Bayesian personalized ranking (BPR) for clickstream data, Siamese neural network architecture for image data and combined ensemble over the above methods for unified embeddings. Further, we compare and analyze the performance of these embeddings across three unrelated real-world e-commerce tasks specifically checking product attribute coverage, finding similar products and predicting returns. We show that unified product embeddings perform uniformly well across all these tasks.

I'm happy to announce that version 0.8.0 of my ggeffects-package is on CRAN now. The update has fixed some bugs from the previous version and comes along with many new features or improvements. One major part that was addressed in the latest version are fixed and improvements for mixed models, especially zero-inflated mixed models (fitted with the glmmTMB-package). In this post, I want to demonstrate the different options to calculate and visualize marginal effects from mixed models. Basically, the type of predictions, i.e. whether to account for the uncertainty of random effects or not, can be set with the type-argument. The default, type "fe", means that predictions are on the population-level and do not account for the random effect variances.

Animals execute goal-directed behaviours despite the limited range and scope of their sensors. To cope, they explore environments and store memories maintaining estimates of important information that is not presently available. Recently, progress has been made with artificial intelligence (AI) agents that learn to perform tasks from sensory input, even at a human level, by merging reinforcement learning (RL) algorithms with deep neural networks, and the excitement surrounding these results has led to the pursuit of related ideas as explanations of non-human animal learning. However, we demonstrate that contemporary RL algorithms struggle to solve simple tasks when enough information is concealed from the sensors of the agent, a property called "partial observability". An obvious requirement for handling partially observed tasks is access to extensive memory, but we show memory is not enough; it is critical that the right information be stored in the right format. We develop a model, the Memory, RL, and Inference Network (MERLIN), in which memory formation is guided by a process of predictive modeling. MERLIN facilitates the solution of tasks in 3D virtual reality environments for which partial observability is severe and memories must be maintained over long durations. Our model demonstrates a single learning agent architecture that can solve canonical behavioural tasks in psychology and neurobiology without strong simplifying assumptions about the dimensionality of sensory input or the duration of experiences.

Amazon, Baidu, Facebook, Google and Microsoft, among other technology companies, have been investing heavily in artificial intelligence and related disciplines like machine learning because they see the technology enabling services that become a source of revenue. Consultancy Accenture earlier this week quantified this enthusiasm, predicting that AI "could double annual economic growth rates by 2035 by changing the nature of work and spawning a new relationship between man and machine" and by boosting labor productivity by 40 per cent. Certainly things could work out well for Accenture, which a day later announced a partnership with Google to help companies deploy Google technology like machine learning. It's as if the global services firm has a stake in the future it foresees. But the machine learning algorithms underpinning this harmonious union of people and circuits aren't secure. In a paper [PDF] presented in August at the 25th Annual Usenix Security Symposium, researchers at École Polytechnique Fédérale de Lausanne, Cornell University, and The University of North Carolina at Chapel Hill showed that machine learning models can be stolen and that basic security measures don't really mitigate attacks.

Amazon, Baidu, Facebook, Google and Microsoft, among other technology companies, have been investing heavily in artificial intelligence and related disciplines like machine learning because they see the technology enabling services that become a source of revenue. Consultancy Accenture earlier this week quantified this enthusiasm, predicting that AI "could double annual economic growth rates by 2035 by changing the nature of work and spawning a new relationship between man and machine" and by boosting labor productivity by 40 per cent. Certainly things could work out well for Accenture, which a day later announced a partnership with Google to help companies deploy Google technology like machine learning. It's as if the global services firm has a stake in the future it foresees. But the machine learning algorithms underpinning this harmonious union of people and circuits aren't secure. In a paper [PDF] presented in August at the 25th Annual Usenix Security Symposium, researchers at École Polytechnique Fédérale de Lausanne, Cornell University, and The University of North Carolina at Chapel Hill showed that machine learning models can be stolen and that basic security measures don't really mitigate attacks.