Stock Selection Strategy And Empirical Test Of Multi-Factor Model

Excellent stock selection skill is the top priority of equity investment,which can effectively bring excess returns(Alpha)to investors when the market isn't in its strong-form efficiency.With the rapid development of computer science and big data technology,multi-factor stock selection theory which practitioners often use in quantitative investment gradually matures and now becomes one of the most popular and robust stock selection methods.Given the recently opened Shenzhen-Hong Kong Stock Connect and the attractive investment opportunities embodied in Hong Kong shares,this paper deploys multi-factor stock selection strategy in Hong Kong stock investment through Shenzhen-Hong Kong Stock Connect with an aim to obtain healthy excess return(Alpha)in Hong Kong stock market;meanwhile this paper proves the effectiveness of multi-factor stock selection strategy in Hong Kong stock market,this practical multi-factor stock selection strategy in Hong Kong shares also provides domestic investors a viable way to invest in Hong Kong shares through Shenzhen-Hong Kong Stock Connect.This paper combines the most commonly-used multi-factor stock selection strategy and fundamental analysis to pick out factors that have a significant impact on individual stock yield from four perspectives-company valuation,growth,capital structure and technical indicators;at the same time,this paper applies data analysis methods such as correlation analysis and outlier analysis in mathematical statistics to process historical data of composite stocks in Hong Kong Stock Connect so as to build multi-factor stock selection model and construct investment portfolio.Based on the 10-year(2007-2017)historical data back testing,this proposed multi-factor stock selection model has exhibited good performance,steadily outperformed Hong Kong stock index,obtained considerable excess returns,and thereby proved to be effective.It can be further concluded that the fundamental factors chosen in this paper have a significant impact on the stock returns of listed companies;and the multi-factor stock selection strategy holds in the Hong Kong market and can be used as a feasible investment strategy for Shenzhen-Hong Kong Stock Connect.