Multi-factor Selection Model Based On China's Convertible Bond Market

Convertible bond,also known as "convertible corporate bonds",is a kind of compound financial instrument issued by listed companies.Due to the late development of China's convertible bond market and the complex design of convertible bonds,investors' understanding of it is still in the primary stage.When many investors participate in the investment of convertible bonds,they do not know exactly what factors will significantly affect the return rates,nor have they formed any analysis system.As China's convertible bond market become active at the end of 2017,domestic scholars also tried to study it by using multi-factor model.However,compared with the stock market,the research on convertible bond market by domestic scholars is still insufficient.By reviewing the literature,I find that it may be a new perspective to distinguish financial industry from non-financial industry.Because of the different operating methods between the two segment industries,their impact factors may also be different.At the same time,I also find that there is still room for empirical analysis and test of the convertible premium rate and yield to maturity.Based on the above findings,I attempt to use Fama-Macbeth method in China's convertible bond market in order to select effective factors of non-financial industry and financial industry.Each convertible bond is scored on the basis of selected effective factors and their relative T statistics.Then the top 20% in scoring will be selected to portfolio and be updated monthly until the sample period is over.Through the backtesting of the constructed portfolio,I find out that the performance of the bond selection model constructed is better than the market benchmark,CSI bond index.In addition,the empirical results of this essay also show that the factors affecting the return rate of the financial industry and the nonfinancial industry in China's convertible bond market are indeed different,and it is necessary to use the bond selection model separately in two segment markets.At the same time,the yield to maturity shows a significant impact on the yields of convertible bonds in both industries,while the convertible premium rate only showed a significant impact on the non-financial industry.The researching process and conclusions of this essay have certain reference significance for exploring the characteristics and the laws of China's convertible bond market.It also helps investors to make rational investment,and to a certain extent,is conducive to the healthy development of domestic convertible bond market.