Machine learning as arbitrage: Can economics help explain AI?

• Main Authors: LU, Huahao, SPIEGEL, Matthew, ZHANG, Hong
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2024
• Subjects: Machine Learning; Dynamic Trading; Anomalies; Interpretable AI; Finance; Finance and Financial Management; Growth and Development
• Online Access: https://ink.library.smu.edu.sg/skbi/47; https://ink.library.smu.edu.sg/context/skbi/article/1046/viewcontent/ML_as_Arbitrage_manuscript_2024_Sept.pdf
• Institution: Singapore Management University

Machine learning algorithms have shown to be remarkably successful tools for predicting asset returns. However, the underlying economic mechanisms behind their performance remain unclear. This paper proposes a model-based dynamic arbitrage trading strategy that combines economic and statistical nons...