Optimizing Investment Strategies: AI-Based Predictive Models In Asset Management
Abstract
Investment strategies in asset management can benefit immensely from AI-based predictive models. This study presents a novel AI framework that combines long short-term memory (LSTM) networks with reinforcement learning to optimize investment decisions. Bioanalyzing historical market data and learning from market trends, our model predicts asset prices and recommends investment actions. Evaluated on a historical stock market dataset, the model achieved a return on investment (ROI) 15% higher than traditional heuristic-based strategies. The application of Long Short-Term Memory (LSTM) neural networks in investment strategy optimization presents a significant advancement over traditional methods. By leveraging historical financial data and macroeconomic indicators, the LSTM model effectively captures complex market patterns and temporal dependencies, leading to superior predictive accuracy. Empirical results demonstrate that the LSTM-based approach achieves a mean annualized return of 10.07% and a Sharpe ratio of 0.98. These metrics surpass the performance of conventional models, such as the Capital Asset Pricing Model (CAPM), the Three-Factor Model (3FM), and the Equally Weighted Portfolio (EQWT), which yielded lower returns and Sharpe ratios. The integration of LSTM-based predictions with the Mean-Variance Optimization (MVO) framework enhances dynamic asset allocation, allowing for continuous adaptation to changing market conditions. This robust methodology not only improves returns but also offers enhanced risk management, making it a valuable tool for modern portfolio management.
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