Hedge Fund Product Design Based On Accrual Anomalies

China officially started the margin financing and securities lending business on March 31,2010.Since then,the size of stock in the securities margin trading has been continuously expanding.From the end of 2010 to the end of 2014,the number has increased from the initial 90 to 902.By the end of 2017,there were 1,036 stocks in the securities margin trading in China,representing 29.88%of the total A-share market stocks,including 558 in Shanghai Stock Exchanges and 478 in Shenzhen Stock Exchanges.It can be seen that China's securities margin transactions have great potential for development.As a new type of financial derivatives,securities margin transactions provide investors with new trading methods.Prior to the start-up of securities margin trading business,investors can only obtain gains by buying bullish stocks,and they can't make profits for bearish stocks.After the start-up of bullish business,China's securities market has officially entered the era of bilateral transactions.When the share price is falling,investors can also obtain returns by lending securities and selling the stocks.Therefore,securities margin trading will become an important investment method in the future.We can study and explore the use of financing to buy bullish stocks,while at the same time lending securities and selling the bearish stocks for hedging,thus avoiding market risks and obtaining stable returns.The securities margin transactions changed the development model of "unilateral cities".Compared with ordinary transactions,there are also more complex risks.In addition to the market risks of ordinary transactions,there are leverage trading risks,forced liquidation risks,supervision risk,credit risk,legal risk and some other risks.At present,China's securities market is between weak market and semi-strong market.The market mechanism is not perfect,and it is affected by factors such as information asymmetry and investor sentiment.Many accounting anomaly have appeared.Many domestic and foreign researches show that,through the analysis of these accounting anomaly,we can create a portfolio that generates excess returns.Sloan initially discovered in 1996 that miscalculation of accruals could generate excess returns.According to this research,Sloan defined accrual anomaly.Since then,many domestic and foreign studies have shown that there are accruals in many countries' stock markets.Also,there are obvious accrual anomaly in Chinese A-share market,and through the analysis of accrual anomaly,we can get excess returns.Therefore,this article will analyze and research based on the accrual anomaly of Chinese A-share market,and build a low-risk,stable-income arbitrage portfolio to provide investors with more opportunities for securities margin investment.Firstly,based on previous research on the accrual anomaly of Chinese A-share market,this paper uses the data from 2000 to 2011,and combines the sales scale and asset size of listed companies to build a portfolio based on accrual vision.The basic idea is as follows:First,the stocks of securities margin trading are divided into 3 groups according to the operating income of the financial report,and then the samples of each group are divided into 3 groups according to the assets,that is,they are divided into 9 groups based on operating income and assets.For these 9 groups ofsamples,all of them are sorted by the accrual proportion and divided into 10 groups according to the size of accounting accruals.The minimum group of accounting accrual will be the long portfolio,and the maximum group of accounting accrual will be the short portfolio.The long portfolio sample is purchased on the day of the financial report disclosure,at the same time,the short portfolio sample is sold.And close the position on the next financial report disclosure date.Based on the above ideas,this paper respectively conducted average t-test and median test on the portfolios of annual report,intermediate report and third quarter report,the portfolios of annual report and third quarter report,and the portfolios of annual report of all securities margin trading stocks and manufacturing securities margin trading stocks.The inspection period was from April 2001 to April 2012.The study found that the average t-test and median test for the industry-wide or manufacturing investment portfolios based on the annual report and the three quarterly report,and for the manufacturing stock portfolios based on annual reports were all significant.So the investment portfolio can be constructed by performing the above operations for all securities margin trading stocks or the manufacturing securities margin trading stocks.Secondly,this paper uses the data from April 2012 to April 2016 to verify the above portfolio strategy to determine whether these two investment strategies can bring a stable annualized rate of return for investors after deducting transaction costs of securities margin.Through the analysis of the portfolio strategy and the yield curve of CSI 300 Index(Shanghai and Shenzhen 300 Index),combined with the Sharpe index,Sortino ratio and the maximum retreat rate of the portfolio strategy and the CSI 300,the study found that the strategy against manufacturing securities margin trading stocks,based on annual report and three quarterly report,can bring a stable annualized rate of return with low risk in these four years,while the strategy against all securities margin trading stocks,based on annual report and three quarterly report,or strategy against manufacturing sevurities,based on annual report,cannot bring a stable annualized rate of return.Therefore,according to the annual report and the three quarterly reports,the portfolio strategy designed for the basic idea of manufacturing stocks is successful.In view of this investment strategy,this paper conducts a study on the trading method and finds that the long-term yield is the highest in terms of average price buying long portfolios,short selling short portfolios,and trading at closing prices.Finally,according to the results of the verification period,this paper designs hedge fund products,using basic ideas,based on the annual reports and the three quarter reports for manufacturing securities margin trading stocks.Considering various types of transaction costs and the actual scale of margin financing,above trading methods were used to simulate the data from April 2016 to April 2017.We found that the actual trading situation of the funds would have a significant impact on the annualized rate of return.Ultimately,the return rate of the hedge fund is in the upper middle level of similar fund products,but it is not very high,because Chinese A-share market experienced a sharp rise and fall from 2015 to 2016.And from April 2016 to April 2017,Chinese A-share market gave stricter control on securities lending and sharply reduced the number of securities lending.This has had an impact on the selection of portfolio samples of hedge fund products.However,with the continuous development of Chinese securities margin trading stock trading system,the A-share market's financing volume and securities lending volume will be gradually balanced.This article's investment strategy will bring more stable income.Therefore,this article designs the hedge fund products based on the study of accrual anomaly,which will have some significance for the market investors.