Machine Learning Empowers the Design and Validation of Quantitative Investment Strategies in Financial Markets

Yutong Hou ()
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Yutong Hou: University of Connecticut

A chapter in Proceedings of the 2025 3rd International Conference on Digital Economy and Management Science (CDEMS 2025), 2025, pp 130-138 from Springer

Abstract: Abstract Within the green finance framework, enterprises can tap into a variety of financing tools and models, which are essential for reaching sustainable development goals. These instruments are key in directing capital toward projects that are both environmentally and socially responsible, propelling the shift to a greener economy. The main tools and models of green finance are outlined below, supported by relevant data that highlights their importance and expansion. In the ever-evolving and intricate financial markets, traditional investment strategies are encountering mounting challenges. This paper explores how machine learning (ML) techniques transform the design and validation of quantitative investment strategies. Initially, a summary of the basic concepts and developmental trends of quantitative investment strategies in financial markets is presented. Next, the paper delves into a range of ML algorithms, including neural networks, support vector machines, and random forests, exploring their application in crafting investment strategies like stock selection, risk assessment, and portfolio optimization. To ensure reliability, advanced backtesting frameworks are presented for validating the efficacy of these approaches. Empirical studies reveal that ML-based quantitative investment strategies surpass traditional methods in both return on investment and risk control. This research offers financial market participants more scientific and effective tools for making investment decisions. This study further explores the potential challenges and limitations tied to applying ML in financial markets, including issues like overfitting, data quality concerns, and regulatory compliance. In essence, this paper delivers a thorough grasp of ML’s role in financial quantitative investment, paving the way for fresh ideas and methods beneficial to both academic research and industry practice.

Keywords: Machine Learning; Quantitative Investment Strategies; Financial Markets; Backtesting (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-770-0_17

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DOI: 10.2991/978-94-6463-770-0_17

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