Industry, Region And Style Selection In Portfolio Investment Decision: Research Of Application In China Stock Market

In this paper, we determine and decompose the importance of industry sector, region, size and value-growth allocation policies within domestic equity portfolios and focus on the interaction effects between these four equity allocation decisions. The empirical analysis results will help the investors to select effective allocation policies to constitute portfolios with less trade cost, lower risks and to use the money in the most effective way. We also attempt to explain return variability over time and among stocks. The research results imply that the four equity allocations can be considered substantial in Shanghai stock market. And in the time series dimension (or in the long term), the total effect is more important than in the cross-sectional dimension (or in the short term), however, both of them are remarkable. For both dimensions, the author finds that the industry sector effect is the most important and the region effect is the second most important. Though there are some redundancy effects between these equity allocation policies in the time series dimension, to use more than one police can improve the total results considerably, especially in the short term. At last, we try to explain the results of the empirical analysis according to some specific phenomena in China stock market.