Survey of Use of Machine Learning in Finance

What is the state of machine learning in finance? In their July 2023 paper entitled “Financial Machine Learning”, Bryan Kelly and Dacheng Xiu survey studies on the use of machine learning in finance to further its reputation as an indispensable tool for understanding financial markets. They focus on the use of machine learning for statistical forecasting, covering regularization methods that mitigate overfitting and efficient algorithms for screening a vast number of potential model specifications. They emphasize areas that have received the most attention to date, including return prediction, factor models of risk and return, stochastic discount factors and portfolio choice. Based on the body of machine learning research in finance, they conclude that: (more…)