DSPO: An End-to-End Framework for Direct Sorted Portfolio Construction

TL;DR

DSPO introduces an end-to-end neural network framework that directly constructs sorted portfolios from raw stock data, improving efficiency and performance in quantitative investment strategies.

Contribution

It is the first method capable of handling market cross-sections with thousands of stocks fully end-to-end from raw multi-frequency data.

Findings

Achieved a RankIC of 10.12% on NYSE in 2023-2024.

Generated an accumulated return of 121.94% on NYSE in 2023-2024.

Outperformed traditional methods in empirical tests.

Abstract

In quantitative investment, constructing characteristic-sorted portfolios is a crucial strategy for asset allocation. Traditional methods transform raw stock data of varying frequencies into predictive characteristic factors for asset sorting, often requiring extensive manual design and misalignment between prediction and optimization goals. To address these challenges, we introduce Direct Sorted Portfolio Optimization (DSPO), an innovative end-to-end framework that efficiently processes raw stock data to construct sorted portfolios directly. DSPO's neural network architecture seamlessly transitions stock data from input to output while effectively modeling the intra-dependency of time-steps and inter-dependency among all tradable stocks. Additionally, we incorporate a novel Monotonical Logistic Regression loss, which directly maximizes the likelihood of constructing optimal sorted portfolios. To the best of our knowledge, DSPO is the first method capable of handling market cross-sections with thousands of tradable stocks fully end-to-end from raw multi-frequency data. Empirical results demonstrate DSPO's effectiveness, yielding a RankIC of 10.12\% and an accumulated return of 121.94\% on the New York Stock Exchange in 2023-2024, and a RankIC of 9.11\% with a return of 108.74\% in other markets during 2021-2022.