Bauer Business Focus

AI and Stock Return Forecasts

What factors should be considered.

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Using AI models for stock return forecasts has created buzz in recent years. Assistant Professor of Finance Rohit Allena at the Bauer College of Business at the University of Houston discusses what other factors should be considered.

“When constructing investment portfolios, it is important for practitioners to consider not only return forecasts, but also look at their confidence intervals.”

“Research derives confidence intervals of return forecasts that are based on a wide range of Machine Learning models and shows that incorporating the information from the forecast confidence intervals, along with the return forecasts, deliver significantly superior returns relative to other strategies.”

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