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Alpha Mining and Enhancing via Warm Start Genetic Programming for Quantitative Investment

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  • Weizhe Ren
  • Yichen Qin
  • Yang Li

Abstract

Traditional genetic programming (GP) often struggles in stock alpha factor discovery due to its vast search space, overwhelming computational burden, and sporadic effective alphas. We find that GP performs better when focusing on promising regions rather than random searching. This paper proposes a new GP framework with carefully chosen initialization and structural constraints to enhance search performance and improve the interpretability of the alpha factors. This approach is motivated by and mimics the alpha searching practice and aims to boost the efficiency of such a process. Analysis of 2020-2024 Chinese stock market data shows that our method yields superior out-of-sample prediction results and higher portfolio returns than the benchmark.

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  • Weizhe Ren & Yichen Qin & Yang Li, 2024. "Alpha Mining and Enhancing via Warm Start Genetic Programming for Quantitative Investment," Papers 2412.00896, arXiv.org.
    • Handle: RePEc:arx:papers:2412.00896
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    References listed on IDEAS

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    1. Tianping Zhang & Yuanqi Li & Yifei Jin & Jian Li, 2020. "AutoAlpha: an Efficient Hierarchical Evolutionary Algorithm for Mining Alpha Factors in Quantitative Investment," Papers 2002.08245, arXiv.org, revised Apr 2020.
    2. Fuli Feng & Xiangnan He & Xiang Wang & Cheng Luo & Yiqun Liu & Tat-Seng Chua, 2018. "Temporal Relational Ranking for Stock Prediction," Papers 1809.09441, arXiv.org, revised Jan 2019.
    3. Fama, Eugene F. & French, Kenneth R., 2015. "A five-factor asset pricing model," Journal of Financial Economics, Elsevier, vol. 116(1), pages 1-22.
    4. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    5. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    6. Zura Kakushadze, 2016. "101 Formulaic Alphas," Papers 1601.00991, arXiv.org, revised Mar 2016.
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