Quantitative Trading Strategies Based On Irrational Attention Of Investors

Information economics theory shows that prices cannot cover all market economic relationships,and the search for information requires costs.Therefore,individual decision makers must not consider all information and make optimal decisions,and the same is true in the stock market.Behavioral finance shows that investors are affected by many irrational factors,and cognitive biases can lead to irrational behavior.Investors will generate irrational attention due to cognitive bias caused by incomplete and irrational information acquisition,and then make irrational decisions that affect their investment returns.Measuring the degree of irrational attention of investors according to time series can detect how the irrational attention of investors affects the investment income that investors get after making irrational decisions.Many scholars have used various methods to measure the irrational attention of investors.This article applies a quantitative trading method to select the index component stocks and some industry stock data of the A-share market from January 1,2013 to December 31,2019.In order to simulate the trading,the irrational attention of investors in China's stock market is measured by simulating the investor's stock trading strategy in China.This article first uses the better performing CSI 500,CSI 300,and GEM stocks as stock pools to conduct simulated transactions.The results show that in these three simulated transactions,investors have irrational attention.In addition,this article uses a simulated investor's trading strategy in the stock market to conduct simulated trading on industry stocks held by natural person investors with a stock market value of more than 40%from 2013 to 2019.The trading period is still from January 1,2013 to 2019.February 31.The results show that investors who trade in stock pools where natural person investors hold a relatively large stock market value have greater self-dominance.Whether in the downturn of the stock market or the short-term recovery of the stock market,their irrational attention to their investment strategies.The greater the impact of the increase,the greater the change in investment income.The empirical results in this paper find that the use of quantitative trading strategies to simulate investor stock trading strategies can measure the degree of irrational attention of investors,and when individual investors hold A shares with a stock market value of less than 40%as the stock pool,their investors The degree of irrational attention is less than the degree of irrational attention of investors in the industry stock pool where individual investors hold more than 40%of the stock market value,and the latter has greater fluctuations in yield due to the irrational attention of investors.The greater the proportion of individual investors holding the stock market value,the greater the volatility of stock market returns due to their irrational attention.The results of this study indicate that China's stock market will suffer huge losses due to the irrational attention of individual investors.This is contrary to the marketization in the direction of China's financial market reform.Future investor structure reforms in China's stock market provide some potentially useful evidence.