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Nonlinear Alpha Modeling

In: Nonlinear Investing: A Quantamental Approach

Author

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  • Lingjie Ma

    (University of Illinois, Chicago, Finance)

Abstract

In the previous chapter, we discussed nonlinearity at the individual factor level. In this chapter, we discuss nonlinearity at the alpha level. Alpha usually comprise factors at various economic levels, such as the company, industry, market, etc. Accordingly, we explore nonlinear relationships between individual factors as well as between sets of factors and returns. Asset returns usually do not follow a normal distribution; rather, their distributions tend to be highly skewed, with long and fat tails. Therefore, we also investigate the nonlinear impacts of factors on the distribution of returns so that we can forecast the distribution of alpha.

Suggested Citation

  • Lingjie Ma, 2025. "Nonlinear Alpha Modeling," Springer Books, in: Nonlinear Investing: A Quantamental Approach, chapter 0, pages 85-141, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-76305-2_4
    DOI: 10.1007/978-3-031-76305-2_4
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