Working Papers

The WNE Working Papers series has been published by the Faculty of Economic Sciences at the University of Warsaw since 2008.

The WNE Working Papers series provides a fast, open channel for disseminating research conducted at the Faculty of Economic Sciences, University of Warsaw. The papers hosted here are working versions (pre-prints) and may evolve as authors refine their analyses, incorporate feedback, or progress through formal peer-review. What you read is the current version released by the authors, timestamped and assigned DOI/ISSN identifiers to ensure precise citation and version tracking. Copyright remains with the authors, who may, at any time, upload a revised file or add a note directing readers to a later, peer-reviewed publication.

The Working Papers series accepts articles by research employees of the Faculty and publications from conferences organised at the Faculty of Economic Sciences at the University of Warsaw. Articles should be original research papers which have not been previously published, on the subject of economics.

Please send your paper by e-mail: aTN%6d?G.z=~4K+5/XoxJUMe|\@]#[YDAmzS}4jkzq'b~~oaepS7.[#M& 

Please send 2 files:

(1) the main text without the title of the article and the authors (DOC/DOCX file) and

(2) the title page including: the title of the paper, the authors and their affiliation (DOC/DOCX file).

Please read the detailed editing requirements before submitting your text. 

Number of Results 2

WP(25/2023)432. Hedging Properties of Algorithmic Investment Strategies using Long Short-Term Memory and Time Series models for Equity Indices

Authors: Michańków Jakub, Sakowski Paweł, Ślepaczuk Robert
This paper proposes a novel approach to hedging portfolios of risky assets when financial markets are affected by financial turmoils. We introduce a completely novel approach to diversification activity not on the level of single assets but on the le…

WP432. Hedging Properties of Algorithmic Investment Strategies using Long Short-Term Memory and Time Series models for Equity Indices

This paper proposes a novel approach to hedging portfolios of risky assets when financial markets are affected by financial turmoils. We introduce a completely novel approach to diversification activity not on the level of single assets but on the level of ensemble algorithmic investment strategies (AIS) built based on the prices of these assets. We employ four types of diverse theoretical models (LSTM - Long Short-Term Memory, ARIMA-GARCH - Autoregressive Integrated Moving Average - Generalized Autoregressive Conditional Heteroskedasticity, momentum, and contrarian) to generate price forecasts, which are then used to produce investment signals in single and complex AIS. In such a way, we are able to verify the diversification potential of different types of investment strategies consisting of various assets (energy commodities, precious metals, cryptocurrencies, or soft commodities) in hedging ensemble AIS built for equity indices (S&P 500 index). Empirical data used in this study cover the period between 2004 and 2022. Our main conclusion is that LSTM-based strategies outperform the other models and that the best diversifier for the AIS built for the S&P 500 index is the AIS built for Bitcoin. Finally, we test the LSTM model for a higher frequency of data (1 hour). We conclude that it outperforms the results obtained using daily data.


Michańków Jakub, Sakowski Paweł, Ślepaczuk Robert
machine learning recurrent neural networks long short-term memory algorithmic investment strategies testing architecture loss function walk-forward optimization over-optimization

WP(23/2023)430. Mean Absolute Directional Loss as a New Loss Function for Machine Learning Problems in Algorithmic Investment Strategies

Authors: Michańków Jakub, Sakowski Paweł, Ślepaczuk Robert
This paper investigates the issue of an adequate loss function in the optimization of machine learning models used in the forecasting of financial time series for the purpose of algorithmic investment strategies (AIS) construction. We propose the Mea…

WP430. Mean Absolute Directional Loss as a New Loss Function for Machine Learning Problems in Algorithmic Investment Strategies

This paper investigates the issue of an adequate loss function in the optimization of machine learning models used in the forecasting of financial time series for the purpose of algorithmic investment strategies (AIS) construction. We propose the Mean Absolute Directional Loss (MADL) function, solving important problems of classical forecast error functions in extracting information from forecasts to create efficient buy/sell signals in algorithmic investment strategies. Finally, based on the data from two different asset classes (cryptocurrencies: Bitcoin and commodities: Crude Oil), we show that the new loss function enables us to select better hyperparameters for the LSTM model and obtain more efficient investment strategies, regarding risk-adjusted return metrics on the out-of-sample data.


Michańków Jakub, Sakowski Paweł, Ślepaczuk Robert
machine learning recurrent neural networks long short-term memory algorithmic investment strategies testing architecture loss function walk-forward optimization over-optimization
  • 1