Research On Low Volatility Effect And Stock Selection Strategies In China Stock Market

In the global securities market,the research on stock return and risk has always been a hotspot in financial research.The traditional Capital Asset Pricing Model believes that the expected return of assets is positively related to its risk,and investors need to take more risks if they want to get higher returns.However,with more and more empirical research,people have found that the traditional CAPM has limitations,and various "financial anomalies" appear in the capital market.With the in-depth study of financial anomalies such as scale effect and momentum effect,people also find the low volatility anomalies,that is,those stocks with low volatility have higher returns than those with high volatility.So many foreign scholars began to study the low volatility anomalies in the stock market.Based on existing research at home and abroad,this paper uses empirical methods to study the low volatility effect in China's stock market,then uses the low volatility factor to construct portfolio strategies.In this paper,taking the idiosyncratic volatility as an index to measure the volatility,based on the data of all stocks in the A-share market(excluding ST and * ST stocks,suspended stocks and stocks that have been listed for less than one year on the day of stock adjustment)from 2008 to 2018,by using the sorting and grouping method to divide the stock into five groups from small to large,constructing the low volatility portfolio and the high volatility portfolio for comparative analysis.The results show that the return of the low volatility portfolio is much higher than the high volatility portfolio,and can defeat the market index,the t statistical test and Mann.Whitney U test results are also significant,verifying the existence of the low volatility effect in China's A-share market.Based on this,this paper compares the performance of low volatility portfolio under different volatility frequency and different adjustment periods,selects the appropriate volatility frequency and adjustment period,and then further analyzes the low volatility effect in different market scale and different market conditions.It is found that the performance of the portfolio in the CSI 500 and the SME index components is significantly higher than that of the CSI 50 and CSI 300 components,that is,the low volatility effect is more obvious in small cap stocks;Dividing the market type into bull,bear and shock markets,it is found that the low volatility effect performs better in bear and shock markets,but worse in bull markets,and low-volatility stocks show good resistance to decline.Finally,this article takes the CSI 500 constituent stocks as a sample,uses low volatility factor to construct stock selection strategy.Takes the idiosyncratic volatility as the ranking index,then further combines the value factor,the quality factor,the momentum factor,the growth factor condition to design four strategies.Through the analysis of the strategies,the results show that the strategies portfolio can beat the CSI 500 index and obtain sustainable and stable excess return.At present,there are few researches on low volatility effect in domestic.This paper can enrich the relevant research content and deepen the understanding of low volatility effect in China's stock market.The low volatility effect shows that the investors in the stock market have overestimated the high volatility stocks,which is an irrational behavior of investors.In addition,the low volatility factor is an effective factor for constructing investment portfolios.The low volatility strategy has high returns and good stability.It has a certain reference significance for the majority of investors and helps to further enrich the investment strategy of the stock market in China.