Statistical learning theory in equity return forecasting

John M. Mulvey, J. Thompson

Research output: Contribution to journalArticle

Abstract

We apply Mangasarian and Bennett's multi-surface method to the problem of allocating financial capital to individual stocks. The strategy constructs market neutral portfolios wherein capital exposure to long positions equals exposure to short positions at the beginning of each weekly period. The optimization model generates excess returns above the S&P 500, even in the presence of reasonable transaction costs. The trading strategy generates statistical arbitrage for trading costs below 10 basis points per transaction.

Original languageEnglish (US)
Pages (from-to)213-228
Number of pages16
JournalOperations Research/ Computer Science Interfaces Series
Volume29
DOIs
StatePublished - 2005

All Science Journal Classification (ASJC) codes

  • Computer Science(all)
  • Management Science and Operations Research

Keywords

  • Data mining
  • Financial forecasting
  • Financial optimization
  • Hedge fund investing
  • Market-neutral investing
  • Statistical learning theory

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