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Learning low-frequency temporal patterns for quantitative trading

Author

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  • Joel da Costa
  • Tim Gebbie

Abstract

We consider the viability of a modularised mechanistic online machine learning framework to learn signals in low-frequency financial time series data. The framework is proved on daily sampled closing time-series data from JSE equity markets. The input patterns are vectors of pre-processed sequences of daily, weekly and monthly or quarterly sampled feature changes. The data processing is split into a batch processed step where features are learnt using a stacked autoencoder via unsupervised learning, and then both batch and online supervised learning are carried out using these learnt features, with the output being a point prediction of measured time-series feature fluctuations. Weight initializations are implemented with restricted Boltzmann machine pre-training, and variance based initializations. Historical simulations are then run using an online feedforward neural network initialised with the weights from the batch training and validation step. The validity of results are considered under a rigorous assessment of backtest overfitting using both combinatorially symmetrical cross validation and probabilistic and deflated Sharpe ratios. Results are used to develop a view on the phenomenology of financial markets and the value of complex historical data-analysis for trading under the unstable adaptive dynamics that characterise financial markets.

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  • Joel da Costa & Tim Gebbie, 2020. "Learning low-frequency temporal patterns for quantitative trading," Papers 2008.09481, arXiv.org.
  • Handle: RePEc:arx:papers:2008.09481
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    References listed on IDEAS

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    1. Tim Gebbie & Fayyaaz Loonat, 2016. "Learning zero-cost portfolio selection with pattern matching," Papers 1605.04600, arXiv.org.
    2. Nicholas Murphy & Tim Gebbie, 2019. "Learning the dynamics of technical trading strategies," Papers 1903.02228, arXiv.org, revised Dec 2019.
    3. Diane Wilcox & Tim Gebbie, 2014. "Hierarchical causality in financial economics," Papers 1408.5585, arXiv.org, revised Sep 2014.
    4. Frank Schorfheide & Kenneth I. Wolpin, 2012. "On the Use of Holdout Samples for Model Selection," American Economic Review, American Economic Association, vol. 102(3), pages 477-481, May.
    5. Marcos López de Prado & Michael J. Lewis, 2019. "Detection of false investment strategies using unsupervised learning methods," Quantitative Finance, Taylor & Francis Journals, vol. 19(9), pages 1555-1565, September.
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