Study On The Multi-factor Stock Selection Model Based On Value Investment

In 2015 and 2016,stocks in the A-share market shocked fall down and the market was bleak,while more than 90% of the quantitative funds in the same period beat the Shanghai and Shenzhen 300 index,most of which were multi-factorial quantitative funds.It is clear that quantitative investment,especially multi-factorial quantitative stock selection,is like a dark horse in the stock market,which can earn far more than the average return in the market.Under such background,it is necessary to carry on the research on the multi-factorial quantitative stock selection,in order to build the effective stock selection model and give suggestions of investment for investors.In this paper,we are devoted to building the construction of value factor stock selection model from the point of view of value investment.Firstly,the paper analyzes the concept of value investment and the representative indices of value investment in terms of operation,valuation and growth.Then it takes these representative indices into the alternative factor database,and uses the ranking method to construct the high and low portfolio and selects out the relevant factors by using return difference,factor information ratio and so on.Besides,it is necessary to eliminate redundant factors by correlation between two factors.There are four effective non-redundant factors which are logarithm of market capitalization,price-earnings ratio,price to book ratio and price-to-sales ratio.Finally,the single type factor selection model and multi-factor selection model are constructed from the data from 2015 to 2017,and then we examine whether the models are effective.In the single factor stock selection,the four effective factors selected the stock combination can obtain the benefit which is much higher than the market return.In the single-factor stock selection of stock share price and three valuation factors,the stock portfolios selected by these four effective factors are able to obtain earnings far above the market average.The valuation stock model constructed by the three valuation factors and the multi-factor selection model of the four factors have also obtained far higher returns than the market returns.Among them,mean variance method,entropy method and equal weight method are used to distribute weight.The results showed that the model performance of mean variance method is better than the equal weight method and the entropy method.This paper is a quantitative study of value investment and an in-depth study of the multi-factor stock selection model.For many individual investors and fund managers,the stock selection factor model constructed in this paper can provide them with reference on investment.