Potential of fast and frugal trees in factor investing on the US equity market

William Forbes; Egor Kiselev; Len Skerratt

doi:10.1007/s11299-025-00351-y

Potential of fast and frugal trees in factor investing on the US equity market

William Forbes (Lead / Corresponding author)
, Egor Kiselev
, Len Skerratt

Research output: Contribution to journal › Article › peer-review

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Abstract

This paper examines the predictive value of fast-and-frugal trees modelling embeding the five factors suggested by model. We examine a fast-and frugal trees predictive model of returns upon stock traded on the S&P500 over the years 2010 to 2024. We allow for three variations in the predictive context of the fast-and-frugal trees used:

• Skewness in the coefficients of the Fama-French models OLS regression estimates

• Analysts following the chosen firm/industry sector.

• Market value of the firm or sector examined. We find the FFT model is a worthy competitor to regression models in predicting stock returns for the S&P 500 in our sample period, especially in terms of the consistent nature of the predictions across sectoral groups. But a logistic regression alternative outperforms both OLS and our fast-and-frugal-tree in predicting S&P 500 returns in our sample period.

Original language	English
Pages (from-to)	437-448
Number of pages	12
Journal	Mind and Society
Volume	24
Issue number	2
Early online date	19 Oct 2025
DOIs	https://doi.org/10.1007/s11299-025-00351-y
Publication status	Published - Dec 2025

Keywords

Asset-pricing
Fama and French
Fast-and-frugal-trees

ASJC Scopus subject areas

Social Psychology
Experimental and Cognitive Psychology
Philosophy
Social Sciences (miscellaneous)
Economics, Econometrics and Finance (miscellaneous)

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10.1007/s11299-025-00351-yLicence: CC BY

Final published versionFinal published version, 827 KBLicence: CC BY

Cite this

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title = "Potential of fast and frugal trees in factor investing on the US equity market",

abstract = "This paper examines the predictive value of fast-and-frugal trees modelling embeding the five factors suggested by model. We examine a fast-and frugal trees predictive model of returns upon stock traded on the S\&P500 over the years 2010 to 2024. We allow for three variations in the predictive context of the fast-and-frugal trees used: • Skewness in the coefficients of the Fama-French models OLS regression estimates• Analysts following the chosen firm/industry sector.• Market value of the firm or sector examined. We find the FFT model is a worthy competitor to regression models in predicting stock returns for the S\&P 500 in our sample period, especially in terms of the consistent nature of the predictions across sectoral groups. But a logistic regression alternative outperforms both OLS and our fast-and-frugal-tree in predicting S\&P 500 returns in our sample period.",

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Potential of fast and frugal trees in factor investing on the US equity market

Abstract

Keywords

ASJC Scopus subject areas

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