Value investing is the idea that the efficient market hypothesis is fundamentally flawed and therefore opportunities exist for shares in publicly traded markets to be undervalued and purchased at discounts to their intrinsic value. Investors like Warren Buffet have made fortunes using the value investing approach, originally proposed by Benjamin Graham and David Dodd in the 1920s at Columbia University. Fundamental financial statement analysis and the use of ratios such as price-to-book (P/B), price-to-earnings (P/E), and discounted cash flow analysis (DCF), among many others, are key to this approach and to determining the intrinsic value of a stock.
This research proposes using Deep Reinforcement Learning (Deep RL) to model a “fair value” price range for a stock, within which a stock would be priced fairly and outside of which a stock would be either over- or undervalued. To do this, an RL agent will be trained to buy and sell a stock based on the value investing financial ratios given to it. Because there are many of these ratios, the state space would be very large, and it would become computationally impossible to index and map every possible state to an action. Therefore, a neural network would also be trained to approximate the policy function for the agent. The research objective is consequently to develop an artificial agent that learns to buy and sell a stock, given information on the intrinsic value of the stock, in order to maximize its profit. The price at which the agent learns to buy and sell a stock would represent the boundaries of where a stock is under- or overvalued, respectively.
Applications of Machine Learning in Finance, particularly Portfolio Risk Optimization and Trading.
Reinforcement Learning.
Deep Learning.
BS Physics, University of California at Irvine.
MSc Corporate & Financial Risk Management, University of Sussex.
MBA, IE Business School.
Professionally, I spent 3 years as an investment analyst at a boutique investment company in the US working on public and private investments. After that I spent 7 years as an entrepreneur in Germany where I founded a self-storage company which was acquired in 2021.
Prof Özgür Şimşek
Dr Hanwen Sun
