A Security Multi-Factor Selection Strategy For Pharmaceutical Stocks

The pharmaceutical industry is a sunrise industry.From January to July 2018,the statistics provided by National Bureau of Statistics of China showed that the growth rate of income and pre-tax profit of the pharmaceutical industry were 14% and 11.2%respectively,which was about twice the growth rate of GDP and maintained growing steadily.In the “13th Five-Year Plan”,the government has made key deployments to the pharmaceutical industry,and also proposed “Healthy China 2030”,making the pharmaceutical industry the main content of national construction.According to the statistics of CSI,the performance of CSI Health Care Index is better than the CSI 300 Index and the Shanghai Composite Index.The annualized return of the CSI Pharmaceutical Index in the past five years was about 6.5%,while the CSI 300 Index and the Shanghai Composite Index were 5.6% and 3.8% respectively.Meanwhile,by the end of September 28,2018,the annualized return in the past three years,the annualized return in the past year and the return of this year all outperformed the market.Industrial growth,macro policy background and index return highlight the investment value of the pharmaceutical industry.This study intends to construct a security selection strategy for pharmaceutical stocks.The introduction part of the paper introduces the background and significance of the research detailly,and clarifies the investment value of the pharmaceutical industry.The second chapter introduces the research status and related technology at home and abroad,and expounds the theoretical basis of the paper.The third chapter introduces the current situation of China's pharmaceutical industry in detail,and makes a careful analysis of the characteristics of the industry.At the same time,it lays the groundwork for the whole article.The fourth chapter builds stock selection strategy step by step.Firstly,the historical constituent stocks of CSI Health Care Index from 2012 to 2018 are used for investment strategy to select stocks.Secondly,select the original factors.The validity of the factors is verified after some processes to factors,such as default value processing,outlier processing and normalization,were applied.Thirdly,stepwise regression is used to solve the problem of multicollinearity between factors.When the model was trained with data from 2012 to 2015,there are 5 factors that are valid and not redundant with the T value being set to 2.Finally,set the threshold of Capitalization ratio of R&D expenses to 40%,and then eliminate stocks with excessive ratios.Test themodel with data from 2015 to 2018.The fifth chapter summarizes the full text,puts forward the shortcomings of this article and looks forward to the future.The strategy constructed in this paper has a good effect.From June 1,2015 to August 15,2018,the cumulative rate of return of this strategy was 29.93%,and the corresponding rate of CSI Health Care Index was-23.88%.The volatility of the strategy was 17.74%,and the volatility of CSI Health Care Index was 27.27%.The Sharpe ratio was about 0.52,and the Sharpe ratio of CSI Health Care Index was-0.26.The maximum retracement of the strategy was-11.49%,and the maximum retracement of CSI Health Care Index was-45.7%.From the perspective of return and risk,the strategy is better than the index.A complete quantitative model based on this selection model can be built by posterity.This study contains two innovation points.Firstly,there are few existing researches on quantitative investment strategies for the pharmaceutical industry.Quantitative investment funds for the pharmaceutical industry in the market are rare as well.This research will bring new investment perspectives and methods to investors interested in investment in the pharmaceutical industry.Secondly,with combination of the characteristics of the pharmaceutical industry itself,new indicator,Capitalization rate of R&D expenses,is added to the quantitative model.