Introduction
We read about extremely deep and powerful neural networks everyday. Surely someone has to ask, does it work the same in Finance?
I am reviewing a highly cited, very famous paper on complexity on machine learning for equity return predictions. The core finding upends what most people assume about conventional understanding to model complexity: the best-performing neural network is a very shallow network with no more than 3 layers.
Everything you have heard about deep learning seem to runs backwards for return prediction. Why?