Embedded draw-down constraint using ensemble learning for stock trading

摘要

The objective in using the Kelly criterion for money management is to maximize returns; however, in many cases, the risk level exceeds that which the investor can bear. In this study, we present an algorithm to calculate the bidding fraction, while taking into account the level of risk (i.e., the maximum drawdown). The proposed algorithm is based on ensemble learning with a combination of bagging and subset resampling. Our assessment results obtained using the FF48 (i.e., Fama-French-48) dataset revealed that when the maximum drawdown was 5% and 10%, ensemble learning outperformed the conventional approach by 2% and 4%, respectively.