Strong denoising of financial time-series

ArXiv ID: 2408.05690 “View on arXiv”

Authors: Unknown

Abstract

In this paper we introduce a method for significantly improving the signal to noise ratio in financial data. The approach relies on combining a target variable with different context variables and use auto-encoders (AEs) to learn reconstructions of the combined inputs. The objective is to obtain agreement among pairs of AEs which are trained on related but different inputs and for which they are forced to find common ground. The training process is set up as a “conversation” where the models take turns at producing a prediction (speaking) and reconciling own predictions with the output of the other AE (listening), until an agreement is reached. This leads to a new way of constraining the complexity of the data representation generated by the AE. Unlike standard regularization whose strength needs to be decided by the designer, the proposed mutual regularization uses the partner network to detect and amend the lack of generality of the learned representation of the data. The integration of alternative perspectives enhances the de-noising capacity of a single AE and allows us to discover new regularities in financial time-series which can be converted into profitable trading strategies.

Keywords: Auto-encoders (AEs), Signal-to-Noise Ratio, Mutual Regularization, Financial Time-Series, Trading Strategies

Complexity vs Empirical Score

  • Math Complexity: 8.0/10
  • Empirical Rigor: 2.0/10
  • Quadrant: Lab Rats
  • Why: The paper presents a novel, theoretically grounded regularization method for autoencoders involving mutual agreement between networks, evidenced by sophisticated derivations of variational bounds and KL divergences, yet it lacks any mention of backtests, dataset descriptions, or implementation specifics, remaining firmly in the conceptual/theoretical domain.
  flowchart TD
    A["Research Goal:<br>Improve Signal-to-Noise Ratio<br>in Financial Data"] --> B["Data/Inputs:<br>Financial Time-Series<br>Target & Context Variables"]
    B --> C["Methodology:<br>Train Paired Auto-Encoders<br>on Different Contexts"]
    C --> D["Process: "Conversation"<br>AEs alternate Speaking & Listening<br>to reach Mutual Agreement"]
    D --> E["Mechanism:<br>Mutual Regularization<br>via Partner Network"]
    E --> F["Outcome:<br>De-noised Representation<br>& New Financial Regularities"]
    F --> G["Application:<br>Profitable Trading Strategies"]