From Econometrics to Machine Learning

Machine Learning’s Transformation of Asset Pricing

Empirical asset pricing is going through a quiet revolution. For decades, econometrics gave us simple, interpretable models of risk and return. Today, machine learning is rewriting the playbook—changing how researchers and practitioners forecast returns, discover factors, and measure risk.

This isn’t just about swapping regression for a neural network. It’s about a deeper shift in how we extract information from markets: from simple factor models with a handful of variables, to adaptive systems that can process hundreds of predictors—ranging from book-to-market ratios to Reddit posts to satellite images of Walmart parking lots.