Multi-factor Stock Selection Strategy Based On Barra Model

Compared to other funds,Multi-factor stock selection strategy,the funds which,more or less,used multi-factor stock selection strategy took a extra yield.It proves that the strategy is still valid.According to Barra model,we select 30 kinds of industry factors and the 9 types of factors,which basically covers the factors of risk and return of stocks.Through the nonlinear optimization,we get weights of stocks and the return of the portfolio.In the condition of neutral industry,neutral style and minimizing expected risk,the annualized return of the strategy without futures hedging is 30.9%,which is much more than the return of market.The annualized return of the strategy hedging with futures is 21.45%,with specific factor making up 61.71%.For the strategy with futures hedging and Channel stop-loss strategy,the annualized return is 32.45% and the max draw-down is 10.88%.In other word,through the last strategy we gains the steady return basically.In the condition of setting up special risk exposure of style,the annualized returns increase.During the attribution analysis,we find that the attribution of momentum factor,volatility factor and liquidity factor enhances obviously,although specific factors contribute the most.