# Factor Investing with a Deep Multi-Factor Model

arXiv: https://arxiv.org/abs/2210.12462 · HTML: https://mlsanity.com/paper/2210.12462/

## Key facts

- Cited by 2 papers in the map (data through 14 Oct 2026).
- Builds on 10 of its 15 references that are in the map.
- First posted on arXiv 22 Oct 2022.

## Builds on (most cited first, 10 of 10)

- [Attention Is All You Need](https://mlsanity.com/paper/1706.03762/) (2017)
- [Graph Attention Networks](https://mlsanity.com/paper/1710.10903/) (2017)
- [Batch Normalization: Accelerating Deep Network Training by Reducing Internal Covariate Shift](https://mlsanity.com/paper/1502.03167/) (2015)
- [A Review on Graph Neural Network Methods in Financial Applications](https://mlsanity.com/paper/2111.15367/) (2021)
- [Applications of deep learning in stock market prediction: recent progress](https://mlsanity.com/paper/2003.01859/) (2020)
- [HIST: A Graph-based Framework for Stock Trend Forecasting via Mining Concept-Oriented Shared Information](https://mlsanity.com/paper/2110.13716/) (2021)
- [Learning Multiple Stock Trading Patterns with Temporal Routing Adaptor and Optimal Transport](https://mlsanity.com/paper/2106.12950/) (2021)
- [REST: Relational Event-driven Stock Trend Forecasting](https://mlsanity.com/paper/2102.07372/) (2021)
- [Deep Risk Model: A Deep Learning Solution for Mining Latent Risk Factors to Improve Covariance Matrix Estimation](https://mlsanity.com/paper/2107.05201/) (2021)
- [Deep Recurrent Factor Model: Interpretable Non-Linear and Time-Varying Multi-Factor Model](https://mlsanity.com/paper/1901.11493/) (2019)

## Built on by (most cited first, 2 of 2)

- [E2EAI: End-to-End Deep Learning Framework for Active Investing](https://mlsanity.com/paper/2305.16364/) (2023)
- [HireVAE: An Online and Adaptive Factor Model Based on Hierarchical and Regime-Switch VAE](https://mlsanity.com/paper/2306.02848/) (2023)

## Abstract (arXiv)

Modeling and characterizing multiple factors is perhaps the most important step in achieving excess returns over market benchmarks. Both academia and industry are striving to find new factors that have good explanatory power for future stock returns and good stability of their predictive power. In practice, factor investing is still largely based on linear multi-factor models, although many deep learning methods show promising results compared to traditional methods in stock trend prediction and portfolio risk management. However, the existing non-linear methods have two drawbacks: 1) there is a lack of interpretation of the newly discovered factors, 2) the financial insights behind the mining process are unclear, making practitioners reluctant to apply the existing methods to factor investing. To address these two shortcomings, we develop a novel deep multi-factor model that adopts industry neutralization and market neutralization modules with clear financial insights, which help us easily build a dynamic and multi-relational stock graph in a hierarchical structure to learn the graph representation of stock relationships at different levels, e.g., industry level and universal level. Subsequently, graph attention modules are adopted to estimate a series of deep factors that maximize the cumulative factor returns. And a factor-attention module is developed to approximately compose the estimated deep factors from the input factors, as a way to interpret the deep factors explicitly. Extensive experiments on real-world stock market data demonstrate the effectiveness of our deep multi-factor model in the task of factor investing.