Factor Allocation with Reinforcement Learning

Multi-(Horizon) Factor Investing with AI

AuthorsRuslan Goyenko; Chengyu Zhang

Paper linkhttps://papers.ssrn.com/sol3/papers.cfm?abstract_id=4187056

This strategy uses Transformer Encoder and Reinforcement Learning to manage long-horizon multifactor portfolios. By analyzing multiple risk factors, asset characteristics, and rebalancing frequencies, it improves risk-adjusted returns for patient investors.

The strategy works because long-term, patient investors can optimize factor exposures over extended horizons. Reinforcement Learning accounts for volatility, liquidity, and asset turnover, enabling superior portfolio performance compared to short-horizon trading.