The Feasibility Study Of Alpha Arbitrage Strategy Based On Machine Learning

Alpha arbitrage is a trading strategy that bases its portfolio on the reverse operation between the stock spot market and the stock future market.The advantage of this strategy lies in effectively avoiding systemic risk of the stock market thus achieving more stable outcome with relatively low overall risk.The stock market of our nation has witnessed great development since the emergence of CSI 300 index future,so is the quantitative investment technique.And machine learning technique is considered most advanced and popular among the quantitative trading strategies.At present,most literature focuses on the stock selection strategies,but research regarding the application of machine learning technique on building Alpha arbitrage portfolio is scarce.This paper first redefines the ? value of securities,and then studies the feasibility of applying machine learning to Alpha arbitrage strategy for the first time.The existing articles on machine learning strategy mostly only use rate of return as classification factor,but by training machine learning programs,we can then transfer stock selection strategy into a binary classification problem.The outcome of Alpha arbitrage depends mainly on two aspects,whether we can effectively avoid shared risk of the stock market or obtain a relatively high return through hedging.And that's why unlike the existing literature,we cannot consider only stock return as classification factor.Therefore,the method of this paper lies in redefining the ? value of securities on the basis of single factor regression model,trying to use the machine learning model to construct the portfolio of Alpha arbitrage strategy under the new definition of ? value of securities.The empirical part will select different portfolios on the basis of different methods,and back-test their applicability.Then,we will discuss the hedging effects according to the outcome of different methods and justify the applicability of machine learning technique on Alpha arbitrage strategy,in terms of the real market.We sincerely hope that this essay will provide some insights on investment decisions for the investors.