Predicting Market Troughs: A Machine Learning Approach with Causal Interpretation
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arXiv
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| Format: | Preprint |
| Published: |
2025
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| _version_ | 1866914026512973824 |
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| author | Rao, Peilin Rojas, Randall R. |
| author_facet | Rao, Peilin Rojas, Randall R. |
| contents | This paper provides robust, new evidence on the causal drivers of market troughs. We demonstrate that conclusions about these triggers are critically sensitive to model specification, moving beyond restrictive linear models with a flexible DML average partial effect causal machine learning framework. Our robust estimates identify the volatility of options-implied risk appetite and market liquidity as key causal drivers, relationships misrepresented or obscured by simpler models. These findings provide high-frequency empirical support for intermediary asset pricing theories. This causal analysis is enabled by a high-performance nowcasting model that accurately identifies capitulation events in real-time. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2509_05922 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Predicting Market Troughs: A Machine Learning Approach with Causal Interpretation Rao, Peilin Rojas, Randall R. Statistical Finance Econometrics Machine Learning 91G80, 62P05 J.4 This paper provides robust, new evidence on the causal drivers of market troughs. We demonstrate that conclusions about these triggers are critically sensitive to model specification, moving beyond restrictive linear models with a flexible DML average partial effect causal machine learning framework. Our robust estimates identify the volatility of options-implied risk appetite and market liquidity as key causal drivers, relationships misrepresented or obscured by simpler models. These findings provide high-frequency empirical support for intermediary asset pricing theories. This causal analysis is enabled by a high-performance nowcasting model that accurately identifies capitulation events in real-time. |
| title | Predicting Market Troughs: A Machine Learning Approach with Causal Interpretation |
| topic | Statistical Finance Econometrics Machine Learning 91G80, 62P05 J.4 |
| url | https://arxiv.org/abs/2509.05922 |