We theoretically characterize the behavior of machine learning asset pricing models. We prove that expected out-of-sample model performance--in terms of SDF Sharpe ratio and test asset pricing errors--is improving in model parameterization (or "complexity"). Our empirical findings verify the...

We propose a statistical model of differences in beliefs in which heterogeneous investors are represented as different machine learning model specifications. Each investor forms return forecasts from their own specific model using data inputs that are available to all investors. We measure...

We survey the nascent literature on machine learning in the study of financial markets. We highlight the best examples of what this line of research has to offer and recommend promising directions for future research. This survey is designed for both financial economists interested in grasping...

The deposit business differs at large versus small banks. We provide a parsimonious model and extensive empirical evidence supporting the idea that much of the variation in deposit-pricing behavior between large and small banks reflects differences in "preferences and technologies." Large banks...

In over-the-counter (OTC) markets, customers search for counterparties. Little is known about this process, however, because existing data is comprised of transaction records, which are only informative about the end of a successful search. Leveraging data from the leading trading platform for...

We conduct a field experiment in partnership with the largest job platform in Brazil to study how environmental, social, and governance (ESG) practices of firms affect talent allocation. We find both an average job-seeker's preference for ESG and a large degree of heterogeneity across...

We measure investors' short- and long-term stock-return expectations using both options and survey data. These expectations at different horizons reveal what investors think their own short-term expectations will be in the future, or forward return expectations. While contemporaneous short-term...

This paper proposes a new approach to the "factor zoo" conundrum. Instead of applying dimension-reduction methods to a large set of portfolios obtained from sorts on characteristics, I construct factors that summarize the information in characteristics across assets and then sort assets into...

We study the economic effects of the interaction of nature loss and climate change in a model that incorporates important aspects of both processes. We capture the distinct ways in which they affect economic activity--with nature constituting a key factor of production and climate change...

We examine how to quantitatively reconcile the high volatility of market valuations of U.S. corporations with the relative stability of macroeconomic quantities since 1929. Macroeconomic and financial variables are measured in a consistent fashion using the Integrated Macroeconomic Accounts...