The Application Of Multi-Factor Model In China’s Stock Marke

Recent years have seen the blooming of the quantitative trading throughout the world, and quantitative trading has also attracts more and more attention from the security industry. Meanwhile, the market has begun to understand the philosophy of the quantitative trading, and besides this quantitative trading has become a hot issue in the market. Although quantitative trading is on the starting point in China, quantitative trading has show its positive effect with a good outlook. Base on the financial reform being on the progress, there will be a lot need to do further study with the quantitative trading.As a hot issue in foreign quantitative trading area, Multi-Factor is also popular in China. The Multi-Factor model tries to use some factors to explain the reason of the movement of the price. What’s more, it’s also very useful for the security industry and funds to do some further research in quantitative trading. As we know, most models is based on the Multi-Factor model. So, it will be very important to look for an effective model for the whole security industry.The first chapter in our research has introduced the development of the quantitative trading, as well as the Multi-Factor model. The second part gives a deep introduction of the steps of founding the Multi-Factor model in detail. The third part is the main part of our research. And this part has compares the results of the different methods of the Multi-Factor models. Besides this, this part tries to look for a method to achieve the alpha return. Then, we also do some further tests to check the return from different dimensions:time series, and cross-section data. In this part, we also pay some attention in checking whether we can achieve the steady return from the model. Meanwhile, we also discuss whether we can achieve a steady return from the factor, and we discuss redundancy of the Factor combination.Our research stresses on the practice of the Multi-Factor model. And we compare different styles of the Multi-Factor models in detail. Besides this, we discuss the method of hedge by stock index futures, and we use this method in practice. And then it performs much better than the one with no hedge. In conclusion the application of hedge method will play a very important part in Multi-Factor model.