Natixis creates model to ‘learn’ how factors interact

Random forest technique sheds light on flux in how factors mix, manager says


A team of quants at Natixis Investment Managers has developed a machine learning approach to risk modelling that they say will help them understand better how risk factors combine to drive asset prices.

The new model uses random forests, a type of supervised machine learning algorithm, to draw out non-linear relationships and interactions between the four Fama-French-Carhart factors – market risk, size, value and momentum – that may have been missed by traditional models.

“Over the years I

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