Stock Market Investment Strategy Based On Inventory Cycle

As China's stock market develops more and more mature,the linkage between the stock market and the economy is also gradually strengthened.And it is instructive to study the correlation between economic cycle and stock market for the investment in mature markets.Firstly this paper reviews the macroeconomic cycles of varying lengths of time,introduces the drivers behind these macroeconomic cycles,and discusses the positioning of the inventory cycle after the year 2000 in the Chinese market.Then the paper revises historical stock market,explores the performance of A-share market in the inventory cycle from both the whole and sub-industries.At the same time,we use vector autoregressive(VAR)model to analyze the relationship between inventory cycle and stock market performance.Research shows that the overall performance of the A-share market is closely related to the inventory cycle.From the perspective of industry performance,we find that the excess returns of different industries have a certain degree of rotation in the inventory cycle,upstream resource-based industries and downstream Selective consumer industries typically start ahead of other industries and have an impact on other industries.Finally,we designed a stock market investment strategy based on the inventory cycle through the rules excavated from the correlation analysis.The stock market investment strategy described in this article is a comprehensive strategy,which incorporates two different types of strategies:timing strategy and stock selection strategy.The time-choosing strategy is to buy in the passive destocking and active restocking phase of the inventory cycle,and to sell in the passive restocking and active destocking phase.The stock selection strategy is to configure the upstream and downstream industry in the passive destocking and active restocking phase,configure non-cyclical essential consumer industries in the phase of passive restocking and active destocking.This strategy showed a good excess returns relative to the Shanghai Composite Index in 17-years-of data back testing.At the same time,because this strategy is based on the macro-economy,there are certain characteristics in the aspects of capital size,trading frequency and holding period.In terms of applicability and promotion of the strategy,this article gives reasonable suggestions.However,there is still room for improvement in terms of indicators,model selection,and application of strategies.