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on Big Data |
| By: | Zhouyu Shen; Dacheng Xiu |
| Abstract: | In high-dimensional regressions with low signal-to-noise ratios, we assess the predictive performance of several prevalent machine learning methods. Theoretical insights show Ridge regression's superiority in exploiting weak signals, surpassing a zero benchmark. In contrast, Lasso fails to exceed this baseline, indicating its learning limitations. Simulations reveal that Random Forest generally outperforms Gradient Boosted Regression Trees when signals are weak. Moreover, Neural Networks with l2-regularization excel in capturing nonlinear functions of weak signals. Our empirical analysis across six economic datasets suggests that the weakness of signals, not necessarily the absence of sparsity, may be Lasso's major limitation in economic predictions. |
| JEL: | C45 C52 C53 C55 C58 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33421 |
| By: | Kubitza, Dennis Oliver; Weßling, Katarina |
| Abstract: | Transitions from school to further education, training, or work are among the most extensively researched topics in the social sciences. Success in such transitions is influenced by predictors operating at multiple levels, such as the individual, the institutional, or the regional level. These levels are intertwined, creating complex inter-dependencies in their influence on transitions. To unravel them, researchers typically apply (multilevel) regression techniques and focus on mediating and moderating relations between distinct predictors. Recent research demonstrates that machine learning techniques can uncover previously overlooked patterns among variables. To detect new patterns in transitions from school to vocational training, we apply artificial neural networks (ANNs) trained on survey data from the German National Educational Panel Study (NEPS) linked with regional data. For an accessible interpretation of complex patterns, we use explainable artificial intelligence (XAI) methods. We establish multiple non-linear interactions within and across levels, concluding that they have the potential to inspire new substantive research questions. We argue that adopting ANNs in the social sciences yields new insights into established relationships and makes complex patterns more accessible |
| Keywords: | school-to-work transitions, VET, machine learning, explainable artificial neuronal networks, SHAP values, rule extraction |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esprep:310974 |
| By: | Ramaharo, Franck Maminirina (Ministry of Economy and Finance (Ministère de l'Economie et des Finances)); Rasolofomanana, Gerzhino H (Ministry of Economy and Finances) |
| Abstract: | We investigate the predictive power of different machine learning algorithms to nowcast Madagascar's gross domestic product (GDP). We trained popular regression models, including linear regularized regression (Ridge, Lasso, Elastic-net), dimensionality reduction model (principal component regression), k-nearest neighbors algorithm (k-NN regression), support vector regression (linear SVR), and tree-based ensemble models (Random forest and XGBoost regressions), on 10 Malagasy quarterly macroeconomic leading indicators over the period 2007Q1-2022Q4, and we used simple econometric models as a benchmark. We measured the nowcast accuracy of each model by calculating the root mean square error (RMSE), mean absolute error (MAE), and mean absolute percentage error (MAPE). Our findings reveal that the Ensemble Model, formed by aggregating individual predictions, consistently outperforms traditional econometric models. We conclude that machine learning models can deliver more accurate and timely nowcasts of Malagasy economic performance and provide policymakers with additional guidance for data-driven decision making. |
| Date: | 2023–12–22 |
| URL: | https://d.repec.org/n?u=RePEc:osf:africa:vpuac_v1 |
| By: | Yoontae Hwang; Yaxuan Kong; Stefan Zohren; Yongjae Lee |
| Abstract: | This paper addresses the critical disconnect between prediction and decision quality in portfolio optimization by integrating Large Language Models (LLMs) with decision-focused learning. We demonstrate both theoretically and empirically that minimizing the prediction error alone leads to suboptimal portfolio decisions. We aim to exploit the representational power of LLMs for investment decisions. An attention mechanism processes asset relationships, temporal dependencies, and macro variables, which are then directly integrated into a portfolio optimization layer. This enables the model to capture complex market dynamics and align predictions with the decision objectives. Extensive experiments on S\&P100 and DOW30 datasets show that our model consistently outperforms state-of-the-art deep learning models. In addition, gradient-based analyses show that our model prioritizes the assets most crucial to decision making, thus mitigating the effects of prediction errors on portfolio performance. These findings underscore the value of integrating decision objectives into predictions for more robust and context-aware portfolio management. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.00828 |
| By: | Kim, Soonho; Song, Xingyi; Park, Boyeong; Ko, Daeun; Liu, Yanyan |
| Abstract: | This report presents a comprehensive overview of the real-time media analysis system developed to assess risks associated with the top five prioritized pests and diseases affecting crops. The activity, under Work Package 2 of the CGIAR Research Initiative on Plant Health, utilizes advanced text mining and machine learning techniques, including a Large Language Model (LLM), to process and analyze media articles. Key achievements include the development of an automated media analysis pipeline to monitor pests and diseases globally, the integration of GPT-4 to classify and extract detailed information from news articles, the creation of a public, interactive Crop Disease Dashboard providing real-time insights, the implementation of a cloud-based interface and REST API for user-friendly interaction and integration, and the ongoing refinement of the system based on human verification and feedback. This innovative approach aims to strengthen crop health monitoring and support policymakers and researchers in mitigating the risks posed by crop diseases and pests. |
| Keywords: | artificial intelligence; large language models; postharvest control; plant diseases; plant disease control |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:fpr:cgiarp:172706 |
| By: | Matthew Caron (Paderborn University); Oliver Müller (Paderborn University); Johannes Kriebel (University of Hamburg) |
| Abstract: | Shortcut learning is a critical challenge in machine learning (ML) that arises when models rely on spurious patterns or superficial associations rather than meaningful relationships in the data. While this issue has been widely studied in computer vision and natural language processing, its impact on tabular and categorical data -- i.e., data common in ML-based research within Information Systems (IS) -- remains underexplored. To address this challenge, we propose a two-phase framework: detecting shortcut learning biases through advanced sampling strategies and mitigating these biases using methods like feature exclusion. Additionally, we emphasize the importance of transparent reporting to enhance reproducibility and provide insights into a model’s generalization capabilities. Using simulated and real-world data, we demonstrate the harmful effects of shortcut learning in tabular data. The results highlight how distribution shifts expose shortcut dependencies, a key focus of the detection phase in our framework. These shifts reveal how models relying on shortcuts fail to generalize beyond training data. While our mitigation strategy is exploratory, it demonstrates that addressing shortcut learning is feasible and underscores the need for further research into model-agnostic solutions. By encouraging comprehensive evaluations and transparent reporting, this work aims to advance the generalizability, reproducibility, and reliability of ML-based research in IS. |
| Keywords: | Machine Learning; ML-Based Research; Shortcut Learning; Reproducibility; Generalizability |
| JEL: | C8 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:pdn:dispap:129 |
| By: | Chowdhury, Koushik |
| Abstract: | Collaborative learning is a method of education in which a group of learners solves a particular task. A collaborative setting encourages learners to take a more active role in knowledge construction. However, when they communicate on a virtual platform such as a chat platform, it is important that they can refer to each other correctly so that they can improve their learning activities with the help of each other, but learners can be sidetracked, which retards their learning progress. To address this issue, this thesis practiced text classification approaches to regularize the conversation between learners so they could refer to each other correctly. The dataset was collected from a focus group experiment designed for students in the Educational Technology Department at Saarland University. The report gives a clear idea of how the collected dataset has been coded and validated with the help of intercoder reliability measurements. After data preprocessing, state-of-the-art data augmentation techniques such as spelling, insertion, substitution, and synonym augmentation are applied. The thesis examines various neural network models to identify the best model for the dataset. Among them, Bidirectional Encoder Representations from Transformers (BERT) provides the best performance with an accuracy of 0.94 and a 0.17 loss value for the augmented preprocessed dataset, where recurrent neural network models tend to overfit. In the evaluation part, a summary of performance matrices is shown, and to evaluate the model, a new dataset with similar data is generated with the help of the OpenAI API Key. The BERT model is able to classify 960 responses out of 1005, where both recurrent neural networks are classified less than 200. The thesis also discussed the issue of model poisoning so that when the model is updated, it can tackle the unclassified responses. Finally, a simple demo of how this BERT model is used to regularize the discourse of two collaborative learners is presented with the help of the Jupyter interface. |
| Date: | 2023–05–11 |
| URL: | https://d.repec.org/n?u=RePEc:osf:thesis:hjk4b_v1 |
| By: | Robin Jarry (LIRMM | ICAR - Image & Interaction - LIRMM - Laboratoire d'Informatique de Robotique et de Microélectronique de Montpellier - CNRS - Centre National de la Recherche Scientifique - UM - Université de Montpellier); Marc Chaumont (UNIMES - Nîmes Université, LIRMM | ICAR - Image & Interaction - LIRMM - Laboratoire d'Informatique de Robotique et de Microélectronique de Montpellier - CNRS - Centre National de la Recherche Scientifique - UM - Université de Montpellier); Laure Berti-Equille (IRD - Institut de Recherche pour le Développement, UMR 228 Espace-Dev, Espace pour le développement - IRD - Institut de Recherche pour le Développement - UPVD - Université de Perpignan Via Domitia - AU - Avignon Université - UR - Université de La Réunion - UNC - Université de la Nouvelle-Calédonie - UG - Université de Guyane - UA - Université des Antilles - UM - Université de Montpellier); Gérard Subsol (LIRMM | ICAR - Image & Interaction - LIRMM - Laboratoire d'Informatique de Robotique et de Microélectronique de Montpellier - CNRS - Centre National de la Recherche Scientifique - UM - Université de Montpellier) |
| Abstract: | Monitoring local socio-economic variations is essential for tracking progress toward sustainable development goals. However, measuring these variations can be challenging, as it requires data collection at least twice, which is both expensive and time-consuming. To address this issue, researchers have proposed remote sensing and deep learning methods to predict socio-economic indicators. However, subtracting two predicted socio-economic indicators from different dates leads to inaccurate results. We propose a novel method for predicting socio-economic variations using satellite image time series to achieve more reliable predictions. Our method leverages both spatial and temporal information to enhance the final prediction. In our experiments, we observed that it outperforms state-of-the-art methods. |
| Keywords: | Remote Sensing, Image Time Series, Deep Learning, Transformer, Socio-economic indicator |
| Date: | 2024–11–25 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:lirmm-04895134 |
| By: | Pilar García (BANCO DE ESPAÑA); Diego Torres (BANCO DE ESPAÑA) |
| Abstract: | We present evidence suggesting that a simple measure of central bank communication tone, as perceived and interpreted by the media, correlates with the performance of financial assets and market participants’ expectations. This correlation appears even stronger than that of indices constructed using more complex models, such as a large language models like BERT. We employ a straightforward quantitative index, inspired by the well-known Baker, Bloom and Davis (2016) paper, using a “bag of words” approach and semantic orientation to measure this media-perceived tone orientation in terms of dovishness or hawkishness. Our approach, which emphasises the perception by the press media, contrasts with previous research that focused primarily on central bank minutes or speeches. Our preliminary findings reveal a statistically significant correlation with the movements of 2, 5 and 10-year US Treasury yields, with reactions being faster and more pronounced for shorter maturities. Our index also shows a leading correlation with some measures of inflation expectations, investor sentiment proxies, the stock market and the dollar. Additionally, to account for the impact of COVID-19, we propose the use of Google search trends as a proxy variable. |
| Keywords: | central bank communication, natural language processing, market perception, monetary policy, inflation expectations, bond yields, investor sentiment |
| JEL: | E50 E52 E58 G14 G17 C45 C81 D83 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2505 |
| By: | de Avila, Rogerio |
| Abstract: | The increased availability of administrative data and big data, coupled with advances in causal modeling and data analytics, presents new opportunities to enhance program evaluation in public policy and social sciences. This thesis investigates how these modern theory-driven approaches can be integrated with traditional methodologies to address complex causal questions, enhancing evaluations' effectiveness, timeliness, and comprehensiveness. Guided by substantial theoretical frameworks such as those proposed by Funnell and Rogers (2011) and empirical studies like Pearl (2009), this research addresses gaps in data utilization, ethical standards, and the application of machine learning. Specific challenges include improving the precision and comprehensiveness of data analysis, ensuring ethical data use as advocated by frameworks like the Five Safes, and enhancing interdisciplinary collaboration and training. This thesis aims to demonstrate significant advancements in program evaluation by bridging these gaps, proposing a paradigm shift towards a more integrated and data-informed approach in public policy and social sciences. |
| Date: | 2024–11–07 |
| URL: | https://d.repec.org/n?u=RePEc:osf:thesis:z7der_v1 |
| By: | Di Zhang |
| Abstract: | Triangular arbitrage is a profitable trading strategy in financial markets that exploits discrepancies in currency exchange rates. Traditional methods for detecting triangular arbitrage opportunities, such as exhaustive search algorithms and linear programming solvers, often suffer from high computational complexity and may miss potential opportunities in dynamic markets. In this paper, we propose a novel approach to triangular arbitrage detection using Graph Neural Networks (GNNs). By representing the currency exchange network as a graph, we leverage the powerful representation and learning capabilities of GNNs to identify profitable arbitrage opportunities more efficiently. Specifically, we formulate the triangular arbitrage problem as a graph-based optimization task and design a GNN architecture that captures the complex relationships between currencies and exchange rates. We introduce a relaxed loss function to enable more flexible learning and integrate Deep Q-Learning principles to optimize the expected returns. Our experiments on a synthetic dataset demonstrate that the proposed GNN-based method achieves a higher average yield with significantly reduced computational time compared to traditional methods. This work highlights the potential of using GNNs for solving optimization problems in finance and provides a promising approach for real-time arbitrage detection in dynamic financial markets. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.03194 |
| By: | Felix Drinkall; Janet B. Pierrehumbert; Stefan Zohren |
| Abstract: | Large language models (LLMs) have shown remarkable success in language modelling due to scaling laws found in model size and the hidden dimension of the model's text representation. Yet, we demonstrate that compressed representations of text can yield better performance in LLM-based regression tasks. In this paper, we compare the relative performance of embedding compression in three different signal-to-noise contexts: financial return prediction, writing quality assessment and review scoring. Our results show that compressing embeddings, in a minimally supervised manner using an autoencoder's hidden representation, can mitigate overfitting and improve performance on noisy tasks, such as financial return prediction; but that compression reduces performance on tasks that have high causal dependencies between the input and target data. Our results suggest that the success of interpretable compressed representations such as sentiment may be due to a regularising effect. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.02199 |
| By: | Joshua Rosaler; Luca Candelori; Vahagn Kirakosyan; Kharen Musaelian; Ryan Samson; Martin T. Wells; Dhagash Mehta; Stefano Pasquali |
| Abstract: | We investigate the application of quantum cognition machine learning (QCML), a novel paradigm for both supervised and unsupervised learning tasks rooted in the mathematical formalism of quantum theory, to distance metric learning in corporate bond markets. Compared to equities, corporate bonds are relatively illiquid and both trade and quote data in these securities are relatively sparse. Thus, a measure of distance/similarity among corporate bonds is particularly useful for a variety of practical applications in the trading of illiquid bonds, including the identification of similar tradable alternatives, pricing securities with relatively few recent quotes or trades, and explaining the predictions and performance of ML models based on their training data. Previous research has explored supervised similarity learning based on classical tree-based models in this context; here, we explore the application of the QCML paradigm for supervised distance metric learning in the same context, showing that it outperforms classical tree-based models in high-yield (HY) markets, while giving comparable or better performance (depending on the evaluation metric) in investment grade (IG) markets. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.01495 |
| By: | Ramaharo, Franck Maminirina (Ministry of Economy and Finance (Ministère de l'Economie et des Finances)); RANDRIAMIFIDY, Michael Fitiavana |
| Abstract: | The aim of this note is to identify the factors influencing renewable energy consumption in Madagascar. We tested 12 features covering macroeconomic, financial, social, and environmental aspects, including economic growth, domestic investment, foreign direct investment, financial development, industrial development, inflation, income distribution, trade openness, exchange rate, tourism development, environmental quality, and urbanization. To assess their significance, we assumed a linear relationship between renewable energy consumption and these features over the 1990–2021 period. Next, we applied different machine learning feature selection algorithms classified as filter-based (relative importance for linear regression, correlation method), embedded (LASSO), and wrapper-based (best subset regression, stepwise regression, recursive feature elimination, iterative predictor weighting partial least squares, Boruta, simulated annealing, and genetic algorithms) methods. Our analysis revealed that the five most influential drivers stem from macroeconomic aspects. We found that domestic investment, foreign direct investment, and inflation positively contribute to the adoption of renewable energy sources. On the other hand, industrial development and trade openness negatively affect renewable energy consumption in Madagascar. |
| Date: | 2023–10–26 |
| URL: | https://d.repec.org/n?u=RePEc:osf:africa:pfrhx_v1 |
| By: | Pedro Henrique Batista de Barros; Ariaster Chimeli |
| Abstract: | In recent years, the Brazilian government has designed policies to promote the palm oil industry and forest protection, limiting oil palm plantations to already degraded areas. As a consequence, oil palm crops have increased rapidly in the eastern Amazon region and contributed to a low-carbon energy transition. However, little is known about the effectiveness of these policies in avoiding oil palm-induced deforestation. This paper estimates the impact of oil palm plantations on deforestation and nightlight intensity, a proxy for less land-intensive economic activities that could contribute further to forest protection. We do so in two steps. First, we combined optical spectral bands from Landsat-8 and radar backscatter values from Sentinel-1 to produce a more accurate map of oil palm plantations with a random forest machine learning algorithm. Next, we used the maximum agro-climatically attainable palm oil yield from the Global Agro-Ecological Zoning (GAEZ) as an instrument for oil palm expansion between 2014 and 2020, and estimated the impact of the crop on deforestation and nightlights. Oil palms expanded mainly on pastures, but also contributed to deforestation. We do not find any evidence that the crop stimulates less land-intensive economic activities. |
| Keywords: | Oil Palm; Deforestation; Amazon; Remote Sensing |
| JEL: | Q15 Q23 Q28 Q56 |
| Date: | 2025–02–17 |
| URL: | https://d.repec.org/n?u=RePEc:spa:wpaper:2025wpecon3 |
| By: | Lionel Fontagné (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Francesca Micocci (IMT - School for Advanced Studies Lucca); Armando Rungi (IMT - School for Advanced Studies Lucca) |
| Abstract: | This paper introduces a causal machine learning approach to investigate the impact of the EU-Canada Comprehensive Economic Trade Agreement (CETA). We propose a matrix completion algorithm on French customs data to obtain multidimensional counterfactuals at the firm, product and destination levels. We find a small but significant positive impact on average at the product-level intensive margin. On the other hand, the extensive margin shows product churning due to the treaty beyond regular entry-exit dynamics: one product in eight that was not previously exported substitutes almost as many that are no longer exported. When we delve into the heterogeneity, we find that the effects of the treaty are higher for products at a comparative advantage. Focusing on multiproduct firms, we find that they adjust their portfolio in Canada by reallocating towards their first and most exported product due to increasing local market competition after trade liberalization. Finally, multidimensional counterfactuals allow us to evaluate the general equilibrium effect of the CETA. Specifically, we observe trade diversion, as exports to other destinations are re-directed to Canada. |
| Keywords: | Free Trade Agreements, International Trade, Causal Inference, Machine Learning, Matrix Completion |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:hal:cesptp:halshs-04913313 |
| By: | Pataranutaporn, Pat (Massachusetts Institute of Technology); Powdthavee, Nattavudh (Nanyang Technological University, Singapore); Maes, Pattie (Massachusetts Institute of Technology) |
| Abstract: | We investigate whether artificial intelligence can address the peer review crisis in economics by analyzing 27, 090 evaluations of 9, 030 unique submissions using a large language model (LLM). The experiment systematically varies author characteristics (e.g., affiliation, reputation, gender) and publication quality (e.g., top-tier, mid-tier, low-tier, AI-generated papers). The results indicate that LLMs effectively distinguish paper quality but exhibit biases favoring prominent institutions, male authors, and renowned economists. Additionally, LLMs struggle to differentiate high-quality AI-generated papers from genuine top-tier submissions. While LLMs offer efficiency gains, their susceptibility to bias necessitates cautious integration and hybrid peer review models to balance equity and accuracy. |
| Keywords: | Artificial Intelligence, peer review, large language model (LLM), bias in academia, economics publishing, equity-efficiency trade-off |
| JEL: | A11 C63 O33 I23 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17659 |
| By: | George Fatouros; Kostas Metaxas; John Soldatos; Manos Karathanassis |
| Abstract: | MarketSenseAI is a novel framework for holistic stock analysis which leverages Large Language Models (LLMs) to process financial news, historical prices, company fundamentals and the macroeconomic environment to support decision making in stock analysis and selection. In this paper, we present the latest advancements on MarketSenseAI, driven by rapid technological expansion in LLMs. Through a novel architecture combining Retrieval-Augmented Generation and LLM agents, the framework processes SEC filings and earnings calls, while enriching macroeconomic analysis through systematic processing of diverse institutional reports. We demonstrate a significant improvement in fundamental analysis accuracy over the previous version. Empirical evaluation on S\&P 100 stocks over two years (2023-2024) shows MarketSenseAI achieving cumulative returns of 125.9% compared to the index return of 73.5%, while maintaining comparable risk profiles. Further validation on S\&P 500 stocks during 2024 demonstrates the framework's scalability, delivering a 33.8% higher Sortino ratio than the market. This work marks a significant advancement in applying LLM technology to financial analysis, offering insights into the robustness of LLM-driven investment strategies. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.00415 |
| By: | Iuliia Alekseenko; Dmitry Dagaev; Sofia Paklina; Petr Parshakov |
| Abstract: | A Keynesian beauty contest is a wide class of games of guessing the most popular strategy among other players. In particular, guessing a fraction of a mean of numbers chosen by all players is a classic behavioral experiment designed to test iterative reasoning patterns among various groups of people. The previous literature reveals that the level of sophistication of the opponents is an important factor affecting the outcome of the game. Smarter decision makers choose strategies that are closer to theoretical Nash equilibrium and demonstrate faster convergence to equilibrium in iterated contests with information revelation. We replicate a series of classic experiments by running virtual experiments with modern large language models (LLMs) who play against various groups of virtual players. We test how advanced the LLMs' behavior is compared to the behavior of human players. We show that LLMs typically take into account the opponents' level of sophistication and adapt by changing the strategy. In various settings, most LLMs (with the exception of Llama) are more sophisticated and play lower numbers compared to human players. Our results suggest that LLMs (except Llama) are rather successful in identifying the underlying strategic environment and adopting the strategies to the changing set of parameters of the game in the same way that human players do. All LLMs still fail to play dominant strategies in a two-player game. Our results contribute to the discussion on the accuracy of modeling human economic agents by artificial intelligence. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.03158 |
| By: | Daniil Karzanov; Rub\'en Garz\'on; Mikhail Terekhov; Caglar Gulcehre; Thomas Raffinot; Marcin Detyniecki |
| Abstract: | This paper introduces a novel agent-based approach for enhancing existing portfolio strategies using Proximal Policy Optimization (PPO). Rather than focusing solely on traditional portfolio construction, our approach aims to improve an already high-performing strategy through dynamic rebalancing driven by PPO and Oracle agents. Our target is to enhance the traditional 60/40 benchmark (60% stocks, 40% bonds) by employing the Regret-based Sharpe reward function. To address the impact of transaction fee frictions and prevent signal loss, we develop a transaction cost scheduler. We introduce a future-looking reward function and employ synthetic data training through a circular block bootstrap method to facilitate the learning of generalizable allocation strategies. We focus on two key evaluation measures: return and maximum drawdown. Given the high stochasticity of financial markets, we train 20 independent agents each period and evaluate their average performance against the benchmark. Our method not only enhances the performance of the existing portfolio strategy through strategic rebalancing but also demonstrates strong results compared to other baselines. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.02619 |
| By: | Victor Chernozhukov; Mert Demirer; Esther Duflo; Iv\'an Fern\'andez-Val |
| Abstract: | We warmly thank Kosuke Imai, Michael Lingzhi Li, and Stefan Wager for their gracious and insightful comments. We are particularly encouraged that both pieces recognize the importance of the research agenda the lecture laid out, which we see as critical for applied researchers. It is also great to see that both underscore the potential of the basic approach we propose - targeting summary features of the CATE after proxy estimation with sample splitting. We are also happy that both papers push us (and the reader) to continue thinking about the inference problem associated with sample splitting. We recognize that our current paper is only scratching the surface of this interesting agenda. Our proposal is certainly not the only option, and it is exciting that both papers provide and assess alternatives. Hopefully, this will generate even more work in this area. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.01548 |
| By: | Thierry Mayer (Institut d'Études Politiques [IEP] - Paris, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique, CEPR - Center for Economic Policy Research); Hillel Rapoport (CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique, CEPR - Center for Economic Policy Research, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, LISER - Luxembourg Institute of Socio-Economic Research); Camilo Umana-Dajud (CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique) |
| Abstract: | Using provisions to ease the movement of business visitors in trade agreements, we show that removing barriers to the movement of business people promotes trade. We document the increasing complexity of Free Trade Agreements and develop an algorithm that combines machine learning and text analysis techniques to examine the content of FTAs. We use the algorithm to determine which FTAs include provisions to facilitate the movement of business people and whether these are included in dispute settlement mechanisms. We show that provisions facilitating business travel are effective in promoting them and eventually increase bilateral trade flows. The paper provides (indirect) evidence of the role of face-toface interaction on aggregate bilateral trade flows. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:hal:psewpa:halshs-04721181 |