A Foundation Design Of Short Selling Based On Financial Early Warning Model

Since securities margin trading is formally carrying out in our country in March 2010,it has realized a rapid development.The range of stocks that can be margin trading has expanded several times,and the policy is becoming more and more mature and perfect.Until March 30,2017,the number of underlying securities margin has expanded to 1040(including 17 ETF)and financing balance is 0.93 trillion yuan while securities balance is 4.403 billion yuan.The amount of leveraged buyouts count 7.9%of the A share market trading(the peak is 11.9%in history).With the development of margin trading in policy and capital market,the amount of margin trading will further increase,and securities margin trading will gradually become an important way of investment.The study on securities margin trading is meaningful and urgently needed.A mass of study have demonstrated that there exists a significant relationship between the financial condition and stock prices.The enterprises’ financial crisis usually leads the stock prices fell sharply.If we can predict the companies that may suffer financial crisis in the future and sell short the stocks,we properly will achieve a good return on investment.Financial early warning model can provide a reliable method for choosing the target stocks of short selling.The research of financial early warning model has been fairly mature,and many existing models has been proved to having good prediction effect.If the former effect financial early warning model can be updated with the newest capital market information,it can be derived for selecting target securities in short selling investment.Therefore,this paper refers to the research achievements of predecessors in financial early warning model,and uses the newest data establishing the newest financial early warning model.Then,we can use the model as the stock choosing model of securities short selling investment,choosing the proper stocks and designing short selling investment strategy.The study can not only improve and update the financial early warning theory,but also can provide our investors with effective short selling strategy.Furthermore,it can promote the development of the securities lending and borrowing market.This paper compared characteristics of several financial early warning model in the previous literature research in the theory section,finally choosing the Logistic model to build the latest financial early warning model for it has the highest accuracy rate and the variables are not normal distributing.In order to reflect a company’s financial condition comprehensively,this paper preliminarily choose 34 financial indicators as the variables from seven aspects:the profit ability,debt paying ability,operation ability,growth ability,quality of earnings,cash flow and capital structure.After the Mann-Whitney test and the stepwise regression method,the variables remained are finally used to build the model.Then,we score the companies which are loss-making 1 and the companies which are profitable 0.Lastly,we use the samples set the newest financial early warning model.The data can come from annual reports,as well as quarterly reports.Therefore,we can set two types of financial early warning model.Accordingly,two kinds of fund products can be designed.To test the effect of the newly-setting financial early warning model,the paper used the model-setting samples as well as samples prepared for prediction in the model.As a result,the model is demonstrated to have high accuracy in coming-back test as well as prediction.To test whether the stocks which are chosen by the financial early warning model have a significant rate of return,this paper does related T test.In consequence,the annualized yield is significantly positive and is significantly higher than 20%.Then,this paper design fund products based on above financial early warning model.Firstly,count p value of the sample companies in prediction period.Then,borrow and short sell the stocks of the biggest 30 p value companies.Finally,buy the stocks to return.Financial early warning model can base on the annual report as well as quarterly report,so two kinds of fund products can be designed accordingly.The two kinds of foundations have the same close periods.The first close period is from November 10,2015 to May 10,2016,and the second one is from 2016,10 November 2016 to May 10,2017.This paper count the yields of the two kinds of foundations and homochromous HuShen 300 Index.As a result the yield of the foundations is significantly higher than that of HuShen 300 Index.Finally,after including all kinds of cost and fees,we can find that the second kind of fund product obtains a higher return on investment compared with the first class product.The two kinds of funds both have yields,and choose stocks to sell out based on financial early warning model is good investment strategy.The financial early warning model based on quarterly report is more effective than the financial early warning model based on annual report in selecting stocks for selling out.