The Theory And Application Of Achieving Excess Earnings With Quantitative Investment Tactics

Quantitative investment is an investment method in which software is used to write programs and specific mathematical models are built to instantiate investment ideas and methods. Currently, effective quantitative investment methods include momentum Alpha tactic and fundamentals Alpha tactic.Alpha means excess earnings, which are the part of earnings above average earnings under specific investment portfolios. Momentum Alpha tactic is based on momentum effect. Momentum effect means that, under certain circumstances, some stocks that perform well previously show higher probabilities of going up in the future. Momentum Alpha tactic utilizes momentum effect to screen out stocks that perform well previously as position combinations; and the combinations will be adjusted constantly to achieve maximum excess earnings. Fundamentals Alpha tactic means analyzing fundamentals, and then accordingly choosing stocks and determining investment portfolios and thus achieving maximum excess earnings.This paper applies economic, statistical and mathematical knowledge, to analyze in depth the inner mechanism of momentum Alpha and fundamentals Alpha and conduct empirical analysis. The empirical model used in this paper is based on current knowledge and takes one innovative step further by combing momentum Alpha tactic and fundamentals Alpha tactic. The model first screens out stocks based on fundamental qualities and puts the stocks into stock pool, then picks specific stocks from the pool based on momentum tactic. The entire process is implemented in Matlab, and the data is recalculated and the cash is adjusted instantly. The historical data used in this paper comes from the fundamentals data and the data of trend of stock prices of A-shares between2008and2014. By testing historical data, this paper demonstrates the effectiveness of momentum Alpha tactic and fundaments Alpha tactic. The paper ends with the conclusions in consideration of empirical results, features of China capital markets and development of financial derivatives. The paper also gives suggestions in risk prevention and control.