Vivek Viswanathan - Quant Equity in China (S4E10)
Flirting with Models
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How to Predict Cross Sectional Equity Returns
First you need an expected return model. And assuming your predicting cross sectional equity returns, that model should utilize some sub set of things that fall under machinery. If you aren't trading in individual stocks, then what you do is dependent on the amount of data that you have. In cross sectional equities, you generally have lots o your models can be far more sophisticated. You want to count for structural sources of coverants, like industry, country, size and assume the remaining variance as residual. It's hard to build conditional expector returns in that space that are better than unconditional expected returns.
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