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Hierarchical Reinforced Trader (HRT): A Bi-Level Approach for Optimizing Stock Selection and Execution

arXiv 2410.14927 ↗First posted 19 Oct 2024q-fin.TR cs.CE cs.LGcited by 1

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Abstract (arXiv)

Automated equity trading requires converting noisy market and news signals into executable portfolio decisions under risk, turnover, and transaction costs. We propose Hierarchical Reinforced Trader (HRT), a bi-level reinforcement learning framework for text-aware portfolio management in multi-asset equity markets. HRT separates trading into two coordinated decisions: a factorized sparse High-Level Controller (HLC) selects asset-level increase, reduce, or hold directions from compact market and text-derived signals, while a risk-aware Low-Level Controller (LLC) converts these directions into feasible portfolio weight adjustments under turnover, drawdown, and text-risk penalties. This decomposition avoids enumerating the full joint action space and makes selection and execution easier to inspect. We evaluate HRT on an open stock-news benchmark with a fixed 89-stock Nasdaq universe, using 2013--2018 for training, 2019 for validation, and 2020--2023 for final out-of-sample testing; the test horizon is restricted to 2020--2023 due to public benchmark data availability under the same timestamp-clean text-aware protocol. Across market-proxy, same-universe portfolio, alpha-only, flat-RL, and hierarchical ablation baselines, HRT delivers the strongest learning-based return--risk--cost trade-off. The full model improves Sharpe from 1.06 for HRT-Base to 1.24, reduces daily turnover from 0.112 to 0.090, and remains robust under transaction-cost stress. These results suggest that separating sparse directional selection from risk-aware execution is an effective way to incorporate market forecasts and text-derived risk signals into portfolio management.

Key facts. Cited by 1 paper in the map (data through 14 Oct 2026). Builds on 10 of its 30 references that are in the map. First posted on arXiv 19 Oct 2024.

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10 of 30 references.

References · 10

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Citing papers per year: 2024: 1.

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  4. 2026FinSMART: Financial Sentiment Analysis for Algorithmic Trading through Market-Aligned Reinforcement Learning
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