Statistical Arbitrage in Rank Space
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Abstract (arXiv)
Equity market dynamics are conventionally investigated in name space, where stocks are indexed by company names. However, this perspective often suffers from high volatility and a low signal-to-noise ratio, which poses challenges for effective learning by deep neural networks (DNNs). In contrast, by indexing stocks by their ranks in capitalization, we gain a distinct and more structured view of market behavior in rank space. In this work, we demonstrate that DNNs achieve superior performance in statistical arbitrage when operating in rank space compared to name space. This performance gain is driven by more robust market representations and enhanced mean-reverting properties of residual returns in rank space, which facilitate more efficient learning. Our findings highlight the critical role of domain-informed data transformation in improving deep learning performance in noisy financial environments.
Key facts. No citing papers in the map yet (data through 14 Oct 2026). Builds on 9 of its 40 references that are in the map. First posted on arXiv 9 Oct 2024.
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9 of 40 references.
References · 9
- 2017Attention Is All You Needcited by 60,361
- 2015Deep Residual Learning for Image Recognitioncited by 52,096
- 2018BERT: Pre-training of Deep Bidirectional Transformers for Language Understandingcited by 40,399
- 2014Adam: A Method for Stochastic Optimizationcited by 37,240
- 2014Going Deeper with Convolutionscited by 4,241
- 2016Instance Normalization: The Missing Ingredient for Fast Stylizationcited by 1,198
- 2019FinBERT: Financial Sentiment Analysis with Pre-trained Language Modelscited by 385
- 2021Deep Learning Statistical Arbitragecited by 13
- 2024Deep Reinforcement Learning and Mean-Variance Strategies for Responsible Portfolio Optimizationcited by 4
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