Mathematical Finance & Financial Data Science Seminar

Uncommon Factors for Bayesian Asset Clusters

Speaker: Will Cong, Cornell University (Johnson) and NBER

Location: Online Zoom access provided to registrants

Date: Tuesday, January 31, 2023, 5:30 p.m.

Synopsis:

Asset returns exhibit grouped heterogeneity, and a ``one-size-fits-all" model has been elusive empirically. We propose a Bayesian Clustering Model (BCM) combining Bayesian variable selection and panel tree for asset clustering. The model marginal likelihood guides the tree growth, with heterogeneous factor selection and estimation in each leaf cluster. We apply BCM to split the cross section of U.S. individual stock returns, identifying MktRF, SMB, and STR (short-term reversal) as common factors, and several uncommon factors partially useful in explaining cross-sectional variations. Differential factor exposure and potential segmentation manifest primarily through differential stock variance, followed by market equity and earnings-to-price ratio. We further discover that more skeptic beliefs about factor usefulness produce more accurate interval coverage, and lag market equity positively drives market betas in most clusters. Beyond asset pricing, BCM offers an interpretable framework for modeling grouped heterogeneity through joint panel data clustering and variable selection.

Speaker Bio:

Will Cong is the Rudd Family Professor of Management, a tenured Professor of Finance, and the founding director of FinTech at Cornell Initiative. He is also a Finance editor at the Management Science, Research Associate at the NBER, cofounder of two international research forums (ABFR and CBER), and was formerly a Kauffman Junior Fellow, Poets & Quants World Best Business School Professor, George P. Shultz Scholar, and Lieberman Fellow. He taught at the University of Chicago after earning his Finance Ph.D. and MS in Statistics from Stanford, and A.M. in Physics jointly with A.B. in Math and Physics from Harvard. He studies applied theory, asset pricing, corporate finance, and information economics, including novel applications of information design in financial markets. Since 2014, he has pioneered interdisciplinary research on tokenomics, crypto asset pricing, AI for finance, blockchain forensics and design, and how digitization and big data interact with competition, growth, and entrepreneurship. His work has been recognized with numerous best paper prizes and grants and has been widely circulated and adopted in the industry. A highly sought-after keynote speaker at various international conferences and world forums, he advises leading FinTech firms and quant funds, as well as government and regulatory agencies around the globe. 

Notes:

This event is free, but requires registration.  Please click here to register.  You will then receive the Zoom link by email about a day or so before the event.