Kalman Filtering and Online Learning Algorithms for Portfolio Selection
This paper proposes a new online learning algorithms for portfolio selection based on alternative measure of price relative called the Cyclically Adjusted Price Relative (CAPR). The CAPR is derived from a simple state-space model of stock prices and we prove that the CAPR, unlike the standard raw price relative widely used in the machine literature, has well deÂ…ned and desirable statistical properties that makes it better suited for nonparametric mean reversion strategies. We find that the statistical evidence of out-of-sample predictability of stock returns is stronger once stock price trends are adjusted for high persistence. To demonstrate the robustness of our approach we perform extensive historical simulations using previously untested real market datasets. On all datasets considered, our proposed algorithms significantly outperform their comparative benchmark allocation techniques without any additional computational demand or modeling complexity.
|Date of creation:||2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 021 671-3980
Fax: +27 21 671 3912
Web page: http://www.econrsa.org/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:rza:wpaper:394. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Charles Tanton)
If references are entirely missing, you can add them using this form.