ARTÍCULO
TITULO

Equity-Market-Neutral Strategy Portfolio Construction Using LSTM-Based Stock Prediction and Selection: An Application to S&P500 Consumer Staples Stocks

Abdellilah Nafia    
Abdellah Yousfi and Abdellah Echaoui    

Resumen

In recent years, a great deal of attention has been devoted to the use of neural networks in portfolio management, particularly in the prediction of stock prices. Building a more profitable portfolio with less risk has always been a challenging task. In this study, we propose a model to build a portfolio according to an equity-market-neutral (EMN) investment strategy. In this portfolio, the selection of stocks comprises two steps: a prediction of the individual returns of stocks using LSTM neural network, followed by a ranking of these stocks according to their predicted returns. The stocks with the best predicted returns and those with the worst predicted returns constitute, respectively, the long side and the short side of the portfolio to be built. The proposed model has two key benefits. First, data from historical quotes and technical and fundamental indicators are used in the LSTM network to provide good predictions. Second, the EMN strategy allows for the funding of long-position stocks by short-sell-position stocks, thus hedging the market risk. The results show that the built portfolios performed better compared to the benchmarks. Nonetheless, performance slowed down during the COVID-19 pandemic.

 Artículos similares

       
 
Sumathi Kumaraswamy, Yomna Abdulla and Shrikant Krupasindhu Panigrahi    
Recurrent stock market fall and rise sequel by COVID-19, rising global inflation, increase in Fed interest rates, the unprecedented meltdown of technology stocks, fear of trade wars, tightening of governments? fiscal policies call for a new trend in inte... ver más

 
Nassar S. Al-Nassar    
This study contributes to the ongoing debate on the size effect and size-based investment styles by investigating the return and volatility spillovers and time-varying conditional correlations among Saudi large-, mid-, and small-cap indices. To this end,... ver más

 
Apichat Chaweewanchon and Rujira Chaysiri    
With the advances in time-series prediction, several recent developments in machine learning have shown that integrating prediction methods into portfolio selection is a great opportunity. In this paper, we propose a novel approach to portfolio formation... ver más

 
Jules Clément Mba, Kofi Agyarko Ababio and Samuel Kwaku Agyei    
This paper investigates the robustness of the conventional mean-variance (MV) optimization model by making two adjustments within the MV formulation. First, the portfolio selection based on a behavioral decision-making theory that encapsulates the MV sta... ver más

 
Nassar S. Al-Nassar and Beljid Makram    
This study investigates return and asymmetric volatility spillovers and dynamic correlations between the main and small and medium-sized enterprise (SME) stock markets in Saudi Arabia and Egypt for the periods before and during the COVID-19 pandemic. Ret... ver más