Financial factors selection with knockoffs: fund replication, explanatory and prediction networks

Damien Challet (1) , Christian Bongiorno (1) , Guillaume Pelletier (2)

1 MICS - Mathématiques et Informatique pour la Complexité et les Systèmes
2 BNP-Paribas

We apply the knockoff procedure to factor selection in finance. By building fake but realistic factors, this procedure makes it possible to control the fraction of false discovery in a given set of factors. To show its versatility, we apply it to fund replication and to the inference of explanatory and prediction networks.

Domaines: Applications [stat.AP]; Génétique humaine; Analyse de données, Statistiques et Probabilités [physics.data-an]; Informatique; Finance quantitative [q-fin.CP]

Damien Challet, Christian Bongiorno, Guillaume Pelletier. Financial factors selection with knockoffs: fund replication, explanatory and prediction networks. Physica A: Statistical Mechanics and its Applications, 2021, 580, pp.126105. ⟨10.1016/j.physa.2021.126105⟩. ⟨hal-03165842⟩