Alpha Factor Mining

Learning from Expert Factors: Trajectory-level Reward Shaping for Formulaic Alpha Mining ArXiv ID: 2507.20263 “View on arXiv” Authors: Junjie Zhao, Chengxi Zhang, Chenkai Wang, Peng Yang Abstract Reinforcement learning (RL) has successfully automated the complex process of mining formulaic alpha factors, for creating interpretable and profitable investment strategies. However, existing methods are hampered by the sparse rewards given the underlying Markov Decision Process. This inefficiency limits the exploration of the vast symbolic search space and destabilizes the training process. To address this, Trajectory-level Reward Shaping (TLRS), a novel reward shaping method, is proposed. TLRS provides dense, intermediate rewards by measuring the subsequence-level similarity between partially generated expressions and a set of expert-designed formulas. Furthermore, a reward centering mechanism is introduced to reduce training variance. Extensive experiments on six major Chinese and U.S. stock indices show that TLRS significantly improves the predictive power of mined factors, boosting the Rank Information Coefficient by 9.29% over existing potential-based shaping algorithms. Notably, TLRS achieves a major leap in computational efficiency by reducing its time complexity with respect to the feature dimension from linear to constant, which is a significant improvement over distance-based baselines. ...

QuantFactor REINFORCE: Mining Steady Formulaic Alpha Factors with Variance-bounded REINFORCE ArXiv ID: 2409.05144 “View on arXiv” Authors: Unknown Abstract Alpha factor mining aims to discover investment signals from the historical financial market data, which can be used to predict asset returns and gain excess profits. Powerful deep learning methods for alpha factor mining lack interpretability, making them unacceptable in the risk-sensitive real markets. Formulaic alpha factors are preferred for their interpretability, while the search space is complex and powerful explorative methods are urged. Recently, a promising framework is proposed for generating formulaic alpha factors using deep reinforcement learning, and quickly gained research focuses from both academia and industries. This paper first argues that the originally employed policy training method, i.e., Proximal Policy Optimization (PPO), faces several important issues in the context of alpha factors mining. Herein, a novel reinforcement learning algorithm based on the well-known REINFORCE algorithm is proposed. REINFORCE employs Monte Carlo sampling to estimate the policy gradient-yielding unbiased but high variance estimates. The minimal environmental variability inherent in the underlying state transition function, which adheres to the Dirac distribution, can help alleviate this high variance issue, making REINFORCE algorithm more appropriate than PPO. A new dedicated baseline is designed to theoretically reduce the commonly suffered high variance of REINFORCE. Moreover, the information ratio is introduced as a reward shaping mechanism to encourage the generation of steady alpha factors that can better adapt to changes in market volatility. Evaluations on real assets data indicate the proposed algorithm boosts correlation with returns by 3.83%, and a stronger ability to obtain excess returns compared to the latest alpha factors mining methods, which meets the theoretical results well. ...

AlphaForge: A Framework to Mine and Dynamically Combine Formulaic Alpha Factors ArXiv ID: 2406.18394 “View on arXiv” Authors: Unknown Abstract The complexity of financial data, characterized by its variability and low signal-to-noise ratio, necessitates advanced methods in quantitative investment that prioritize both performance and interpretability.Transitioning from early manual extraction to genetic programming, the most advanced approach in the alpha factor mining domain currently employs reinforcement learning to mine a set of combination factors with fixed weights. However, the performance of resultant alpha factors exhibits inconsistency, and the inflexibility of fixed factor weights proves insufficient in adapting to the dynamic nature of financial markets. To address this issue, this paper proposes a two-stage formulaic alpha generating framework AlphaForge, for alpha factor mining and factor combination. This framework employs a generative-predictive neural network to generate factors, leveraging the robust spatial exploration capabilities inherent in deep learning while concurrently preserving diversity. The combination model within the framework incorporates the temporal performance of factors for selection and dynamically adjusts the weights assigned to each component alpha factor. Experiments conducted on real-world datasets demonstrate that our proposed model outperforms contemporary benchmarks in formulaic alpha factor mining. Furthermore, our model exhibits a notable enhancement in portfolio returns within the realm of quantitative investment and real money investment. ...