Multi-factor Model To Build Portfolio

Hayek(1945)first proposed the idea that market is a mechanism of knowledge aggregation.Now we call it the efficient market hypothesis.Its core idea is that market price contains all available information.At that time,the Austrian School of economics of Hayek focused on whether market economy is better than planned economy.Therefore,they did not have any idea about information and market efficiency The degree is discussed in depth.After that,Fama of Chicago School of Economics(1965,19701991)divided the market into semi efficient and strong efficient markets according to whether the price can fully reflect three different degree information sets.Although the efficient market hypothesis is accepted and believed by most people,its core hypothesis,the cost related to information arbitrage,can be ignored or unimportant,but it is difficult to be approximately established in the real world,just as Grossman and Stiglitz(1980)said:we believe that access to information is cost-effective,so the price will not fully reflect all available information;otherwise,those who spend resources to buy information will not get any benefits.There is a fundamental conflict between the efficiency of market information dissemination and the motivation of information acquisition.Therefore,in the discussion of market efficiency,we need to pay attention to two interrelated but different markets-asset trading market and information trading market.The above discussion of Grossman and Stiglitz is just the necessary condition for quantifying the income that can be obtained by investment in the information trading market.Based on the theory of its existence,this paper will explain the practical possibility of quantitative investment in China's stock market through the construction and backtesting of multi factor portfolio.In order to avoid p-hacking as much as possible,this paper selects each factor used based on the idea of Harvey(2017),which emphasizes the importance of a priori.Of course,data is the sample.In the "soft science" of finance,we can't completely exclude the suspicion of data mining.We can only avoid it as much as possible by thinking about the source of income.