by Diana Mykhalyuk, Ricardo Crisostomo
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Suggested foundations for text and language models in finance and asset pricing and factor research. Specialist prerequisites vary by paper.
Understand how text is converted into numerical inputs.
Check whether labels measure the financial construct of interest.
Interpret exposures, residuals and uncertainty in fitted coefficients.
Work with returns and recognise their empirical limitations.
Test whether a text-derived signal survives an honest financial evaluation.
Measure agreement when constructing or checking labels.
Connect factor definitions to portfolio construction.
Connect diversification, common risk factors, investor views, and the properties of a risk measure.