Genetic Mean Reversion Strategy for Online Portfolio Selection with Transaction Costs

Seung-Hyun Moon and Yourim Yoon
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Seung-Hyun Moon: School of Software, Kwangwoon University, 20 Kwangwoon-ro, Nowon-gu, Seoul 01897, Korea
Yourim Yoon: Department of Computer Engineering, Gachon University, 1342 Seongnamdaero, Sujeong-gu, Seongnam-si 13120, Korea

Mathematics, 2022, vol. 10, issue 7, 1-20

Abstract: Online portfolio selection (OLPS) is a procedure for allocating portfolio assets using only past information to maximize an expected return. There have been successful mean reversion strategies that have achieved large excess returns on the traditional OLPS benchmark datasets. We propose a genetic mean reversion strategy that evolves a population of portfolio vectors using a hybrid genetic algorithm. Each vector represents the proportion of the portfolio assets, and our strategy chooses the best vector in terms of the expected returns on every trading day. To test our strategy, we used the price information of the S&P 500 constituents from 2000 to 2017 and compared various strategies for online portfolio selection. Our hybrid genetic framework successfully evolved the portfolio vectors; therefore, our strategy outperformed the other strategies when explicit or implicit transaction costs were incurred.

Keywords: 68W50; 91G80 (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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