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Register a new userBuilding Cross-Sectional Systematic Strategies By Learning to Rank
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The success of a cross-sectional systematic strategy depends critically on accurately ranking assets prior to portfolio construction. Contemporary techniques perform this ranking step either with simple heuristics or by sorting outputs from standard regression or classification models, which have been demonstrated to be sub-optimal for ranking in other domains (e.g. information retrieval). To address this deficiency, we propose a framework to enhance cross-sectional portfolios by incorporating learning-to-rank algorithms, which lead to improvements of ranking accuracy by learning pairwise and listwise structures across instruments. Using cross-sectional momentum as a demonstrative case study, we show that the use of modern machine learning ranking algorithms can substantially improve the trading performance of cross-sectional strategies -- providing approximately threefold boosting of Sharpe Ratios compared to traditional approaches.
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The composition of natural liquidity has been changing over time. An analysis of intraday volumes for the S&P500 constituent stocks illustrates that (i) volume surprises, i.e., deviations from their respective forecasts, are correlated across stocks, and (ii) this correlation increases during the last few hours of the trading session. These observations could be attributed, in part, to the prevalence of portfolio trading activity that is implicit in the growth of ETF, passive and systematic investment strategies; and, to the increased trading intensity of such strategies towards the end of the trading session, e.g., due to execution of mutual fund inflows/outflows that are benchmarked to the closing price on each day. In this paper, we investigate the consequences of such portfolio liquidity on price impact and portfolio execution. We derive a linear cross-asset market impact from a stylized model that explicitly captures the fact that a certain fraction of natural liquidity providers only trade portfolios of stocks whenever they choose to execute. We find that due to cross-impact and its intraday variation, it is optimal for a risk-neutral, cost minimizing liquidator to execute a portfolio of orders in a coupled manner, as opposed to a separable VWAP-like execution that is often assumed. The optimal schedule couples the execution of the various orders so as to be able to take advantage of increased portfolio liquidity towards the end of the day. A worst case analysis shows that the potential cost reduction from this optimized execution schedule over the separable approach can be as high as 6% for plausible model parameters. Finally, we discuss how to estimate cross-sectional price impact if one had a dataset of realized portfolio transaction records that exploits the low-rank structure of its coefficient matrix suggested by our analysis.
The cross-media retrieval problem has received much attention in recent years due to the rapid increasing of multimedia data on the Internet. A new approach to the problem has been raised which intends to match features of different modalities directly. In this research, there are two critical issues: how to get rid of the heterogeneity between different modalities and how to match the cross-modal features of different dimensions. Recently metric learning methods show a good capability in learning a distance metric to explore the relationship between data points. However, the traditional metric learning algorithms only focus on single-modal features, which suffer difficulties in addressing the cross-modal features of different dimensions. In this paper, we propose a cross-modal similarity learning algorithm for the cross-modal feature matching. The proposed method takes a bilinear formulation, and with the nuclear-norm penalization, it achieves low-rank representation. Accordingly, the accelerated proximal gradient algorithm is successfully imported to find the optimal solution with a fast convergence rate O(1/t^2). Experiments on three well known image-text cross-media retrieval databases show that the proposed method achieves the best performance compared to the state-of-the-art algorithms.
Online Learning to Rank (OL2R) eliminates the need of explicit relevance annotation by directly optimizing the rankers from their interactions with users. However, the required exploration drives it away from successful practices in offline learning to rank, which limits OL2Rs empirical performance and practical applicability. In this work, we propose to estimate a pairwise learning to rank model online. In each round, candidate documents are partitioned and ranked according to the models confidence on the estimated pairwise rank order, and exploration is only performed on the uncertain pairs of documents, i.e., emph{divide-and-conquer}. Regret directly defined on the number of mis-ordered pairs is proven, which connects the online solutions theoretical convergence with its expected ranking performance. Comparisons against an extensive list of OL2R baselines on two public learning to rank benchmark datasets demonstrate the effectiveness of the proposed solution.
This scientific research paper presents an innovative approach based on deep reinforcement learning (DRL) to solve the algorithmic trading problem of determining the optimal trading position at any point in time during a trading activity in stock markets. It proposes a novel DRL trading strategy so as to maximise the resulting Sharpe ratio performance indicator on a broad range of stock markets. Denominated the Trading Deep Q-Network algorithm (TDQN), this new trading strategy is inspired from the popular DQN algorithm and significantly adapted to the specific algorithmic trading problem at hand. The training of the resulting reinforcement learning (RL) agent is entirely based on the generation of artificial trajectories from a limited set of stock market historical data. In order to objectively assess the performance of trading strategies, the research paper also proposes a novel, more rigorous performance assessment methodology. Following this new performance assessment approach, promising results are reported for the TDQN strategy.
When estimating the relevancy between a query and a document, ranking models largely neglect the mutual information among documents. A common wisdom is that if two documents are similar in terms of the same query, they are more likely to have similar relevance score. To mitigate this problem, in this paper, we propose a multi-agent reinforced ranking model, named MarlRank. In particular, by considering each document as an agent, we formulate the ranking process as a multi-agent Markov Decision Process (MDP), where the mutual interactions among documents are incorporated in the ranking process. To compute the ranking list, each document predicts its relevance to a query considering not only its own query-document features but also its similar documents features and actions. By defining reward as a function of NDCG, we can optimize our model directly on the ranking performance measure. Our experimental results on two LETOR benchmark datasets show that our model has significant performance gains over the state-of-art baselines. We also find that the NDCG shows an overall increasing trend along with the step of interactions, which demonstrates that the mutual information among documents helps improve the ranking performance.
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