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Quantum Reinforcement Learning Trading Agent for Sector Rotation in the Taiwan Stock Market

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  • Chi-Sheng Chen
  • Xinyu Zhang
  • Ya-Chuan Chen

Abstract

We propose a hybrid quantum-classical reinforcement learning framework for sector rotation in the Taiwan stock market. Our system employs Proximal Policy Optimization (PPO) as the backbone algorithm and integrates both classical architectures (LSTM, Transformer) and quantum-enhanced models (QNN, QRWKV, QASA) as policy and value networks. An automated feature engineering pipeline extracts financial indicators from capital share data to ensure consistent model input across all configurations. Empirical backtesting reveals a key finding: although quantum-enhanced models consistently achieve higher training rewards, they underperform classical models in real-world investment metrics such as cumulative return and Sharpe ratio. This discrepancy highlights a core challenge in applying reinforcement learning to financial domains -- namely, the mismatch between proxy reward signals and true investment objectives. Our analysis suggests that current reward designs may incentivize overfitting to short-term volatility rather than optimizing risk-adjusted returns. This issue is compounded by the inherent expressiveness and optimization instability of quantum circuits under Noisy Intermediate-Scale Quantum (NISQ) constraints. We discuss the implications of this reward-performance gap and propose directions for future improvement, including reward shaping, model regularization, and validation-based early stopping. Our work offers a reproducible benchmark and critical insights into the practical challenges of deploying quantum reinforcement learning in real-world finance.

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  • Chi-Sheng Chen & Xinyu Zhang & Ya-Chuan Chen, 2025. "Quantum Reinforcement Learning Trading Agent for Sector Rotation in the Taiwan Stock Market," Papers 2506.20930, arXiv.org, revised Oct 2025.
  • Handle: RePEc:arx:papers:2506.20930
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    References listed on IDEAS

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    1. Chiarella, Carl & He, Xue-Zhong & Zheng, Min, 2011. "An analysis of the effect of noise in a heterogeneous agent financial market model," Journal of Economic Dynamics and Control, Elsevier, vol. 35(1), pages 148-162, January.
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