Optimizing Investment Strategies with Lazy Factor and Probability Weighting: A Price Portfolio Forecasting and Mean-Variance Model with Transaction Costs Approach

Shuo Han, Yinan Chen and Jiacheng Liu

Papers from arXiv.org

Abstract: Market traders often engage in the frequent transaction of volatile assets to optimize their total return. In this study, we introduce a novel investment strategy model, anchored on the 'lazy factor.' Our approach bifurcates into a Price Portfolio Forecasting Model and a Mean-Variance Model with Transaction Costs, utilizing probability weights as the coefficients of laziness factors. The Price Portfolio Forecasting Model, leveraging the EXPMA Mean Method, plots the long-term price trend line and forecasts future price movements, incorporating the tangent slope and rate of change. For short-term investments, we apply the ARIMA Model to predict ensuing prices. The Mean-Variance Model with Transaction Costs employs the Monte Carlo Method to formulate the feasible region. To strike an optimal balance between risk and return, equal probability weights are incorporated as coefficients of the laziness factor. To assess the efficacy of this combined strategy, we executed extensive experiments on a specified dataset. Our findings underscore the model's adaptability and generalizability, indicating its potential to transform investment strategies.

Date: 2023-06
New Economics Papers: this item is included in nep-rmg
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