J. Risk Financial Manag. 2026, 19(1), 60; https://doi.org/10.3390/jrfm19010060 - 12 Jan 2026
Abstract
Overfitting remains a critical challenge in data-driven financial modelling, where machine learning (ML) systems learn spurious patterns in historical prices and fail out of sample and in deployment. This paper introduces the GT-Score, a composite objective function that integrates performance, statistical significance, consistency,
[...] Read more.
Overfitting remains a critical challenge in data-driven financial modelling, where machine learning (ML) systems learn spurious patterns in historical prices and fail out of sample and in deployment. This paper introduces the GT-Score, a composite objective function that integrates performance, statistical significance, consistency, and downside risk to guide optimization toward more robust trading strategies. This approach directly addresses critical pitfalls in quantitative strategy development, specifically data snooping during optimization and the unreliability of statistical inference under non-normal return distributions. Using historical stock data for 50 S&P 500 companies spanning 2010–2024, we conduct an empirical evaluation that includes walk-forward validation with nine sequential time splits and a Monte Carlo study with 15 random seeds across three trading strategies. In walk-forward validation, GT-Score improves the generalization ratio (validation return divided by training return) by 98% relative to baseline objective functions. Paired statistical tests on Monte Carlo out-of-sample returns indicate statistically detectable differences between objective functions (p < 0.01 for comparisons with Sortino and Simple), with small effect sizes. These results suggest that embedding an anti-overfitting structure into the objective can improve the reliability of backtests in quantitative research.
Full article
(This article belongs to the Special Issue Investment Strategies and Market Dynamics)
►
Show Figures
Figure 1
