High-Dimensional Stock Portfolio Trading with Deep Reinforcement Learning

This paper proposes a Deep Reinforcement Learning algorithm for financial portfolio trading based on Deep Q-learning. The algorithm is capable of trading high-dimensional portfolios from cross-sectional datasets of any size which may include data gaps and non-unique history lengths in the assets. We...

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Bibliographic Details
Published in:arXiv.org 2021-12
Main Authors: Pigorsch, Uta, Schäfer, Sebastian
Format: Article
Language:English
Subjects:
Algorithms
Deep learning
Investment strategy
Machine learning
Online Access:Get full text
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Summary:This paper proposes a Deep Reinforcement Learning algorithm for financial portfolio trading based on Deep Q-learning. The algorithm is capable of trading high-dimensional portfolios from cross-sectional datasets of any size which may include data gaps and non-unique history lengths in the assets. We sequentially set up environments by sampling one asset for each environment while rewarding investments with the resulting asset's return and cash reservation with the average return of the set of assets. This enforces the agent to strategically assign capital to assets that it predicts to perform above-average. We apply our methodology in an out-of-sample analysis to 48 US stock portfolio setups, varying in the number of stocks from ten up to 500 stocks, in the selection criteria and in the level of transaction costs. The algorithm on average outperforms all considered passive and active benchmark investment strategies by a large margin using only one hyperparameter setup for all portfolios.
ISSN:2331-8422