Application of machine learning in algorithmic investment strategies on global stock markets

Jan Grudniewicz and Robert Ślepaczuk

Research in International Business and Finance, 2023, vol. 66, issue C

Abstract: The research undertakes the subject of machine learning based algorithmic investment strategies. Several technical analysis indicators were employed as inputs to machine learning models such as Neural Networks, K Nearest Neighbor, Regression Trees, Random Forests, Naïve Bayes classifiers, Bayesian Generalized Linear Models, and Support Vector Machines. Models were used to generate trading signals on WIG20, DAX, S&P500, and selected CEE indices in the period between 2002-01–01 and 2023–03–31. Strategies were compared with each other and with the benchmark buy-and-hold strategy in terms of achieved levels of risk and return. Sensitivity analysis was used to assess the quality of the estimation on independent subsets. The findings of the study showed that algorithmic strategies outperformed passive strategies in terms of risk-adjusted returns and that for the analyzed indices, Linear Support Vector Machine and Bayesian Generalized Linear Model were the best-performing models. The Linear Support Vector Machine was chosen as the model that, on average, produced the best results using a more thorough rank approach based on the outcomes for all examined models and indices.

Keywords: Algorithmic investment strategies; Machine learning; Neural networks; Regression trees; Random forests; Support vector machine; Technical analysis; Equity stock indices; Developed and emerging markets; Information ratio (search for similar items in EconPapers)
JEL-codes: C14 C4 C45 C53 C58 G11 G17 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:66:y:2023:i:c:s0275531923001782

DOI: 10.1016/j.ribaf.2023.102052

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