IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2608.29669.html

Wasserstein-Barycentric Interaction Fields for Spatial Factor Models: Evidence from Language-Model Representations

Author

Listed:
  • Marcus Gawronsky
  • Chun-Sung Huang

Abstract

Spatial asset-pricing models take the structure of inter-firm interaction as given. We infer that structure from firms' information environments using language-model representations. Each firm is represented as a distribution of news-article embeddings, and a target-anchored Wasserstein barycentric reconstruction selects, for every firm, the weighted combination of other firms whose information footprints jointly reconstruct its own. The resulting directed peer field enters a quadratic exposure-adjustment model in which the spatial coefficient indexes alignment with information peers relative to stand-alone exposure. Using fields built from 2018-2022 news and frozen before 2023-2026 returns, we find that the constructed field organizes cross-sectional return dependence beyond the Fama-French five factors and momentum and raises the held-out mean Gaussian quasi-log score relative to a matched factor-only model. Because factor betas are unchanged, the gain lies in residual covariance. The field outperforms pairwise distance weighting and equal weighting of the same peers, and remains incrementally informative beside persistent news co-mentions under the primary factor-conditioned specification. Linear and quadratic transport generate nearly identical peer-return signals and equivalent held-out predictive performance. The barycentric-proximity ordering persists across alternative embedding models, and a pre-period encoder preserves the held-out advantage under the primary specification. Language-model representations thus serve as a measurement instrument for latent inter-firm information structure in capital markets.

Suggested Citation

  • Marcus Gawronsky & Chun-Sung Huang, 2026. "Wasserstein-Barycentric Interaction Fields for Spatial Factor Models: Evidence from Language-Model Representations," Papers 2608.29669, arXiv.org, revised Sep 2026.
  • Handle: RePEc:arx:papers:2608.29669
    as

    Download full text from publisher

    File URL: https://arxiv.org/pdf/2608.29669
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Lin William Cong & Tengyuan Liang & Xiao Zhang & Wu Zhu, 2024. "Textual Factors: A Scalable, Interpretable, and Data-driven Approach to Analyzing Unstructured Information," NBER Working Papers 33168, National Bureau of Economic Research, Inc.
    2. Ajim Uddin & Xinyuan Tao & Dantong Yu, 2024. "The Network Factor of Equity Pricing: A Signed Graph Laplacian Approach," Journal of Financial Econometrics, Oxford University Press, vol. 22(5), pages 1616-1655.
    3. Kelejian, Harry H. & Prucha, Ingmar R., 2010. "Specification and estimation of spatial autoregressive models with autoregressive and heteroskedastic disturbances," Journal of Econometrics, Elsevier, vol. 157(1), pages 53-67, July.
    4. Ledoit, Olivier & Wolf, Michael, 2004. "A well-conditioned estimator for large-dimensional covariance matrices," Journal of Multivariate Analysis, Elsevier, vol. 88(2), pages 365-411, February.
    5. Son, Bumho & Lee, Jaewook, 2022. "Graph-based multi-factor asset pricing model," Finance Research Letters, Elsevier, vol. 44(C).
    6. Ge, Shuyi & Li, Shaoran & Linton, Oliver & Liu, Weiguang & Su, Wen, 2026. "Should we augment large covariance matrix estimation with auxiliary network information?," Journal of Econometrics, Elsevier, vol. 255(C).
    7. Marcus Gawronsky & Chun-Sung Huang, 2026. "Portfolio Risk Bounds without Cross-Asset Return Covariances: Distributional Fields from Language-Model Representations," Papers 2608.29692, arXiv.org.
    8. Ge, Shuyi & Li, Shaoran & Linton, Oliver, 2023. "News-implied linkages and local dependency in the equity market," Journal of Econometrics, Elsevier, vol. 235(2), pages 779-815.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Marcus Gawronsky & Chun-Sung Huang, 2026. "Portfolio Risk Bounds without Cross-Asset Return Covariances: Distributional Fields from Language-Model Representations," Papers 2608.29692, arXiv.org.
    2. Hannart, Alexis & Naveau, Philippe, 2014. "Estimating high dimensional covariance matrices: A new look at the Gaussian conjugate framework," Journal of Multivariate Analysis, Elsevier, vol. 131(C), pages 149-162.
    3. Marco Battaglini & Eleonora Patacchini & Edoardo Rainone, 2019. "Endogenous Social Connections in Legislatures," NBER Working Papers 25988, National Bureau of Economic Research, Inc.
    4. Weilong Liu & Yanchu Liu, 2025. "Covariance Matrix Estimation for Positively Correlated Assets," Papers 2507.01545, arXiv.org.
    5. Badinger, Harald & Egger, Peter, 2013. "Spacey Parents and Spacey Hosts in FDI," Department of Economics Working Paper Series 154, WU Vienna University of Economics and Business.
    6. Charlotte Ham & John B. Loomis & Patricia A. Champ, 2015. "Relative Economic Values of Open Space Provided by National Forest and Military Lands to Surrounding Communities," Growth and Change, Wiley Blackwell, vol. 46(1), pages 81-96, March.
    7. Yong Bao & Xiaotian Liu & Lihong Yang, 2020. "Indirect Inference Estimation of Spatial Autoregressions," Econometrics, MDPI, vol. 8(3), pages 1-26, September.
    8. Aojie Yuan & Haiyue Zhang & Zijian Su, 2026. "Jacobian Rank Collapse in Decision-Focused Learning," Papers 2609.39261, arXiv.org.
    9. Steven N. Durlauf & Yannis M. Ioannides, 2010. "Social Interactions," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 451-478, September.
    10. Avagyan, Vahe & Alonso Fernández, Andrés Modesto & Nogales, Francisco J., 2015. "D-trace Precision Matrix Estimation Using Adaptive Lasso Penalties," DES - Working Papers. Statistics and Econometrics. WS 21775, Universidad Carlos III de Madrid. Departamento de Estadística.
    11. Mishra, Anil V., 2016. "Foreign bias in Australian-domiciled mutual fund holdings," Pacific-Basin Finance Journal, Elsevier, vol. 39(C), pages 101-123.
    12. Nathan Lassance & Alberto Martín-Utrera & Majeed Simaan, 2024. "The Risk of Expected Utility Under Parameter Uncertainty," Management Science, INFORMS, vol. 70(11), pages 7644-7663, November.
    13. Liu, Xiaodong & Prucha, Ingmar R., 2025. "On testing for spatial or social network dependence in panel data allowing for network variability," Journal of Econometrics, Elsevier, vol. 247(C).
    14. Ali Atiah Alzahrani, 2026. "Verify Claims, Not Scores: Evidence-Based Verification of Modular Agents," Papers 2610.01348, arXiv.org.
    15. Michele Aquaro & Natalia Bailey & M. Hashem Pesaran, 2015. "Quasi Maximum Likelihood Estimation of Spatial Models with Heterogeneous Coefficients," CESifo Working Paper Series 5428, CESifo.
    16. Tapsuwan, Sorada & Polyakov, Maksym & Bark, Rosalind & Nolan, Martin, 2015. "Valuing the Barmah–Millewa Forest and in stream river flows: A spatial heteroskedasticity and autocorrelation consistent (SHAC) approach," Ecological Economics, Elsevier, vol. 110(C), pages 98-105.
    17. Marc da Costa Nunes, 2026. "Large Signal Libraries: Equal-Weight Limits and the Divergent Spectra of Signals and PnL," Papers 2609.12477, arXiv.org.
    18. McDowell, Shaun, 2018. "An empirical evaluation of estimation error reduction strategies applied to international diversification," Journal of Multinational Financial Management, Elsevier, vol. 44(C), pages 1-13.
    19. Bagnara, Matteo & Vaucher, Benoit, 2025. "Risk diversification and extreme risk mitigation," Journal of Empirical Finance, Elsevier, vol. 83(C).
    20. Olivier Ledoit & Michael Wolf, 2003. "Honey, I shrunk the sample covariance matrix," Economics Working Papers 691, Department of Economics and Business, Universitat Pompeu Fabra.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2608.29669. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: https://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.