Abstract:Predicting cross-sectional stock returns is challenging due to low signal-to-noise ratios and evolving market regimes. Classical factor models offer interpretability but limited flexibility, while deep learning models achieve strong performance yet often underutilize financial priors. We address this gap with PRISM-VQ (PRior-Informed Stock Model with Vector Quantization), a dynamic factor framework that integrates expert prior factors, vector-quantized discrete latent factors learned from cross-sectional structure, and a structure-conditioned Mixture-of-Experts to generate time-varying factor loadings. Vector quantization acts as an information bottleneck that suppresses noise while capturing robust market structure, with discrete codes serving both as latent factors and as routing signals for temporal expert specialization. Experiments on CSI 300 and S&P 500 show consistent improvements in cross-sectional return prediction and portfolio performance over strong baselines while preserving interpretability. Our code is available at this https URL.
| Comments: | IJCAI 2026 Accepted Paper including Technical Appendix |
| Subjects: | Machine Learning (cs.LG); Computational Engineering, Finance, and Science (cs.CE); Statistical Finance (q-fin.ST) |
| Cite as: | arXiv:2605.13407 [cs.LG] |
| (or arXiv:2605.13407v1 [cs.LG] for this version) | |
| https://doi.org/10.48550/arXiv.2605.13407 arXiv-issued DOI via DataCite (pending registration) |
Submission history
From: Jae Wook Song [view email]
[v1]
Wed, 13 May 2026 12:02:53 UTC (18,570 KB)