The Research Of Market Effect And Mechanism Of Sector Rotation On China's Stock Market

With the successful implementation of the split share structure reform in China's A-share market in 2005,the stock market has witnessed rapidly market-oriented development,and the phenomenon of "sector rotation" has become the most common and far-reaching market effect in China's stock market.Almost all investors pay close attention to the phenomenon of sector rotation.The theoretical study of sector rotation has also added new contents.The industry allocation strategy and industry rotation strategy also ushered in a good opportunity for development.However,the stock market is unpredictable and the mechanism of sector rotation is faint.How to find the mechanism of sector rotation and allocate it efficiently to obtain excess returns has become an important problem that troubles many investors.This paper chooses June 2005 to August 2018 as the time window for the study.Firstly,according to the trend of the market,the study interval is divided into eight large-scale cycles and several small-scale cycles.The descriptive statistical method is used to verify the market effect of sector rotation between different levels of cycles.Secondly,from the perspective ofmacroeconomic mapping,industry correlation transmission and behavioral finance,this paper summarizes the causes of sector rotation and sector linkage in China.Then,each industry in different levels of cycles is classified into several categories by clustering analysis method,and the mechanism of sector rotation based on large categories of industries is studied.Then the macro-monetary cycle is divided by the annual growth rate differences between M1 and M2 to verify the applicability of the rotation mechanism of large sectors in the monetary cycle.Finally,the probability of two sectors linkages and quarterly rotation between individual industry sectors is further examined in detail,so as to provide specific industry allocation reference for investors.The innovation of this paper is mainly embodied in the fact that the research interval is a continuous two-bull-bear transition period,which makes it more historical and inductive,and all the measurable mechanisms such as which sectors rotate at the same time,which sectors rotate sequentially,the length of the rotation period and the macro-timing of rotation are included in the mechanism concerned.This paper finds that,first of all,the market effect of sector rotation does exist in China's stock market.Although in different market stages,the effect of sector rotation is different,the main sectors involved in sector rotation are different,and the duration of sector rotation is different.Secondly,through cluster analysis,28 Shenwan first-class industries can be classified into four categories: strong-cycle,weak-cycle,counter-cycle and passive sectors,among which counter-cycle includes banks,consumers and defensive sectors.The overall rotation mechanism is mainly embodied in:strong-cycle and weak-cycle industries rose most in the bull market,but fell most in the bear market;Defense and other counter-cyclical industries rose the least in the bull market,but often the most resilient or even rising in the bear market.Generally speaking,it is the rotation of cyclical industries and counter-cyclical industries in the bull-bear cycle.Thirdly,considering the monetary cycle,the cyclical industry is a strong industry in the period of monetary expansion,and the earnings exceed theindex.In the period of monetary contraction,the earnings of non-cyclical industries,especially the banking and consumer industries,far exceed the index,and the rotation law of large sectors is also applicable in the monetary cycle.Investors divide the macroeconomic cycle according to the growth rates difference between M1 and M2,and carry out industry rotation allocation strategy has certain feasibility and basis.Finally,according to the analysis of linkage and rotation probability of a single industry,industry and telecommunications,industry and alternative,medicine and consumption are the most suitable industry portfolio for simultaneous investment,and financial industry index is the most unsuitable industry for portfolio investment with other industries.The combination of alternative-consumption,finance-consumption,public-consumption,public-optional,industrial-consumption and other industries is the most suitable strategy combination for cross-quarter sequential rotation allocation.These research results have certain enlightenment and guiding significance for investors to grasp the mechanism of industry sector rotation and allocate investment in industry rotation.