NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Mao Ye

University of Illinois at Urbana-Champaign
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Tel: 217/244-0474

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NBER Program Affiliations: AP
NBER Affiliation: Faculty Research Fellow

NBER Working Papers and Publications

October 2017Sparse Signals in the Cross-Section of Returns
with Alexander M. Chinco, Adam D. Clark-Joseph: w23933
This paper applies the Least Absolute Shrinkage and Selection Operator (LASSO) to make rolling 1-minute-ahead return forecasts using the entire cross section of lagged returns as candidate predictors. The LASSO increases both out-of-sample fit and forecast-implied Sharpe ratios. And, this out-of-sample success comes from identifying predictors that are unexpected, short-lived, and sparse. Although the LASSO uses a statistical rule rather than economic intuition to identify predictors, the predictors it identifies are nevertheless associated with economically meaningful events: the LASSO tends to identify as predictors stocks with news about fundamentals.
August 2017Investment-Horizon Spillovers
with Alexander M. Chinco: w23650
This paper uses wavelets to decompose each stock’s trading-volume variance into frequency-specific components. We find that stocks dominated by short-run fluctuations in trading volume have abnormal returns that are 1% per month higher than otherwise similar stocks where short-run fluctuations in volume are less important—i.e., stocks with less of a short-run tilt. And, we document that a stock’s short-run tilt can change rapidly from month to month, suggesting that these abnormal returns are not due to some persistent firm characteristic that’s simultaneously adding both short-run fluctuations and long-term risk.
 
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