Deep Reinforcement Learning for Finance and the Efficient Market Hypothesis

Odermatt, Leander; Beqiraj, Jetmir; Osterrieder, Jörg Robert (2021). Deep Reinforcement Learning for Finance and the Efficient Market Hypothesis Elsevier 10.2139/ssrn.3865019

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Is there an informational gain by training a Deep Reinforcement Learning agent for automated stock trading using other time series than the one to be traded? In this work, we implement a DRL algorithm in a solid framework within a model-free and actor-critic approach and learn it with 21 global Multi Assets to predict and trade on the S&P 500. The Efficient Market Hypothesis sets out that it is impossible to gather more information from the broader input. We demand to learn a DRL agent on this index with and without the additional information of these several Multi Assets to determine if the agent could capture invisible dependencies to end up with an informational gain and a better performance. The aim of this work is not to tune the hyperparameters of a DRL agent; several papers already exist on this subject. Nevertheless, we use a proven setup as model architecture. We take a Multi Layer Perceptron (short: MLP) as the neural network architecture with two hidden layers and 64 neurons each layer. The activation function used is the hyperbolic tangent. Further, Proximal Policy Optimization (short: PPO) is used as the policy for simple implementation and enabling a continuous state space. To deal with uncertainties of neural nets, we learn 100 agents for each scenario and compared both results. Neither the Sharpe ratios nor the cumulative returns are better in the more complex approach with the additional information of the Multi Assets, and even the single approach performed marginally better. However, we demonstrate that the complexly learned agent delivers less scattering over the 100 simulations in terms of the risk-adjusted returns, so there is an informational gain due to Multi Assets. A DRL agent learned with additional information delivers more robust results compared to the taken risk. We deliver valuable results for the further development of Deep Reinforcement Learning and provide a unique and resourceful approach.

Item Type:	Working Paper
Division/Institute:	Business School > Institute for Applied Data Science & Finance > Finance, Accounting and Tax Business School
Name:	Odermatt, Leander; Beqiraj, Jetmir and Osterrieder, Jörg Robert0000-0003-0189-8636
Subjects:	H Social Sciences > HG Finance
ISSN:	1556-5068
Publisher:	Elsevier
Language:	English
Submitter:	Jörg Robert Osterrieder
Date Deposited:	24 Aug 2022 09:11
Last Modified:	29 Aug 2022 14:52
Publisher DOI:	10.2139/ssrn.3865019
Additional Information:	Article No: 3865019
Uncontrolled Keywords:	Deep Reinforcement Learning, Automated Stock Trading, Finance, Efficient Market Hypothesis, AI
ARBOR DOI:	10.24451/arbor.17420
URI:	https://arbor.bfh.ch/id/eprint/17420