Multiple Factor Model For Chinese A Stock Market

In recent years, with the development of information technology and China’s capital market, quantitative investment has been caught more and more attention in domestic stock market. Compared with the traditional investment model, quantitative investment has its particular advantages. It not only breaks the limits of research area, but also overcome the weaknesses of human nature. Besides, quantitative investment is a more systematic and scientific investment model. Among all the quantitative strategies, the multi-factor model is one of the most popular strategies. This paper tries to seek for alpha return of Chinese stock market using multi-factor model.This thesis based on Chinese A stock market related companies’financial data and transaction data from 2007 years to 2013 years. First of all, we do significance tests on 69 factors which may influence the stock returns, from which we get 38 risk factors that affect the stock returns. Then we reduce the dimension and get 9 style factors include size, value, growth, financial quality, earnings yield, operations, momentum, liquidity and volatility. Besides, we also add the industry factors together with the style factors to build our multi-factor stock selection model.The research results show that our multi-factor model can beat the market, which means that application of multiple factor model in Chinese A stock market has realistic meanings. Our portfolio obtained annual return of 26.8% in back testing! Besides, we also divide the market into bull and bear markets to test is the model effective in different market style. The results show that no matter in the bull market, bear market or concussive market, the multi-factor model can beat the market obviously, and, the performance is better in the concussive market then in the bull and bear market.However, there are still some shortcomings in our research. For example, there are several large retracements in back test, and there are still some factors which may affect the stock returns not be studied. This will be the main emphasis in our further study.