A Research To Assist Retail Investors In Making The Right Choice-Based On GARCH And Hilbert-Huang Transform

Returns and volatility of stock market have always been the focus of attention from all walks of life. In the developed markets, long-term investment, collective investment and indexing investment have been generally recognized by the investors. But in Chinese A share market, things are much different. Although many Chinese investors have been repeatedly arguing, no final conclusion has yet been reached on this matter. What's more, previous discussions only remained in experience and typical cases. It is necessary to draw conclusions by rigorous reasoning.Firstly, the paper introduces some time series models:GARCH and Hilbert-Huang Transform. Secondly, we select Shanghai Composite Index, Shenzhen Composite Index and hybrid fund Index as the representation of stocks and funds in order to analyze the characteristics of return and volatility. Thirdly, we evaluate and compare the behaviors of professional investors and retail investors via data from financial database. Finally, according to the results, we come to the follow conclusions:(1) The hybrid fund managers are able to respond flexibly to the sector rotation, their asset allocation strategies are correct and effective. (2) For average investors, buying hybrid funds is better than buying stocks. In particular, the expected rate of return of hybrid funds is higher while the volatility is lower. In addition, stocks investment performance of retail investors is below market benchmark. (3) The performance record of hybrid funds is above market benchmark, which prove the validity of active investment in China. The US stock market is in the opposite situation because of higher fund management fees and more efficient market. (4) Long-term investment strategy also works in China. Indeed, hybrid funds and small cap stocks are suitable for buying and holding. However, blue chips are exceptions. Buying stocks in the closing stages of a bull market or holding too many large-cap stocks will significantly reduce profits.With the help of advanced time series methods and representative data, we provide practical advice for investors, link theory with practice.