Autoencoder asset pricing models and economic restrictions — international evidence

Result code in IS VaVaI

<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F67985556%3A_____%2F25%3A00639180" target="_blank" >RIV/67985556:_____/25:00639180 - isvavai.cz</a>

Alternative codes found

RIV/00216208:11230/25:10502887

Result on the web

<a href="https://www.sciencedirect.com/science/article/pii/S105752192500729X?via%3Dihub" target="_blank" >https://www.sciencedirect.com/science/article/pii/S105752192500729X?via%3Dihub</a>

DOI - Digital Object Identifier

<a href="http://dx.doi.org/10.1016/j.irfa.2025.104642" target="_blank" >10.1016/j.irfa.2025.104642</a>

Result language

angličtina

Original language name

Autoencoder asset pricing models and economic restrictions — international evidence

Original language description

We evaluate the performance of the Conditional Autoencoder (CAE) model by Gu et al. (2021) across U.S. and international datasets, considering economic constraints such as the exclusion of microcap and illiquid firms and the inclusion of transaction costs. The CAE model captures nonlinear relationships between returns and firm characteristics by jointly estimating latent factors and conditional betas while enforcing the no-arbitrage condition. The original study demonstrated significant reductions in out-of-sample pricing errors from both statistical and economic perspectives in the U.S. context. We validate these findings on the original U.S. dataset and show that the model generalises well to a U.S. dataset with a broader set of firm characteristics and to international markets. When economic constraints are introduced, portfolio profitability declines substantially. Profitability drops by 60%–85% when shifting from the full sample to the liquid sample before trading costs. However, after costs, only the liquid strategies remain profitable. In particular, long-only strategies on the liquid sample are the only ones to consistently outperform market benchmarks across all datasets, achieving Sharpe ratios between 0.65 and 0.78 for both equal- and value-weighted portfolios. Overall, the findings underscore both the limitations and the practical potential of the CAE model under realistic market frictions.

Czech name

—

Czech description

—

Type

J_imp - Article in a specialist periodical, which is included in the Web of Science database

CEP classification

—

OECD FORD branch

50201 - Economic Theory

Project

<a href="/en/project/GA24-11555S" target="_blank" >GA24-11555S: Taming the tail risks in financial markets with data-driven methods</a><br>

Continuities

I - Institucionalni podpora na dlouhodoby koncepcni rozvoj vyzkumne organizace

Publication year

2025

Confidentiality

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Name of the periodical

International Review of Financial Analysis

ISSN

1057-5219

e-ISSN

1873-8079

Volume of the periodical

107

Issue of the periodical within the volume

1

Country of publishing house

NL - THE KINGDOM OF THE NETHERLANDS

Number of pages

9

Pages from-to

104642

UT code for WoS article

001579057000004

EID of the result in the Scopus database

2-s2.0-105016479141