RACORN-K: Risk-Aversion Pattern Matching-based Portfolio Selection

Yang Wang, Dong Wang, Yaodong Wang and You Zhang

Papers from arXiv.org

Abstract: Portfolio selection is the central task for assets management, but it turns out to be very challenging. Methods based on pattern matching, particularly the CORN-K algorithm, have achieved promising performance on several stock markets. A key shortage of the existing pattern matching methods, however, is that the risk is largely ignored when optimizing portfolios, which may lead to unreliable profits, particularly in volatile markets. We present a risk-aversion CORN-K algorithm, RACORN-K, that penalizes risk when searching for optimal portfolios. Experiments on four datasets (DJIA, MSCI, SP500(N), HSI) demonstrate that the new algorithm can deliver notable and reliable improvements in terms of return, Sharp ratio and maximum drawdown, especially on volatile markets.

Date: 2018-02
New Economics Papers: this item is included in nep-cmp, nep-rmg and nep-upt
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