Assets Allocation Based On Factor Model: An Application Of Black-litterman Model In A-share Market

Assets allocation becomes more and more important in A-share marketbenefiting from the fast development of assets management in China. In the thesis, weapply Black-Litterman model in the industry allocation in A-share market. And testthe performances from2009to2013under four different conditions.Expected returns are very important input parameters for Black-Litterman model.In the thesis, we use factor model to predict returns of different industries. Seven stylefactors are constructed from single factors with common characteristics. Those stylefactors are proved to have low correlations with each other, and are characterized withmore persistence, which provide good prediction ability.From2009to2013, results show that, under four different conditions,Black-Litterman model provides positive relative returns. It also provides lowervolatilities than that with the market weights. Each year, it provides positive relativereturns and lower volatilities under unconstraint condition. Besides, the transactioncosts are less than2%each year at most of the time except under the condition of100%position and no shorting, which is a little bit more than2%, indicating good allocationresults.