Research On Multi-factor Investment Strategy Based On Compound Style Rotation

Quantitative investment is one of the mainstream investment strategies in the market.The types of investment strategies included in quantitative investment can cover the entire investment process,including stock selection,timing,asset allocation,arbitrage and risk control.Among them,the multi-factor model is one of the quantitative stock selection models widely used in academia and industry.The multi-factor model analyzes a large amount of market information to find the factors that perform well in the market and screen stocks through the factors.The phenomenon of style rotation is a common but important phenomenon in the securities market.When a certain stock style is strong,the opposite stock style tends to be weaker,and various style combinations perform in turn,one after the other,which forms a style rotation.The compound style refers to a stock portfolio with two or more style attributes.The research in this paper finds that the phenomenon of compound style rotation has more obvious rotation characteristics.Style rotation is of great significance to the allocation of investment portfolios.Grasping the style switching of the securities market means controlling risks in a timely manner,reducing drawdowns,and obtaining higher excess returns by tracking strong styles.In this context,this thesis constructs a multi-factor investment strategy with a compound style rotation timing mechanism,hoping to provide theoretical and practical support for the wide-ranging university community and industry investors to build a quantitative stock selection and timing model that adapts to the transition of market styles.This article uses the 300 value index and 700 growth index as samples to represent large-cap value style stocks and small-cap growth style stocks respectively,which proves that there is a compound style rotation phenomenon in my country’s securities market.On this basis,this paper designs the RSI indicator to judge the relative strength of the style,and combines it with the moving average trading system to construct a compound style rotation timing trading mechanism.Based on the theory of behavioral finance and asset pricing,this paper selects six candidate factors including technology,scale,and valuation,and uses the scoring method to construct two multi-factor models of large-cap value and small-cap growth and prove the multi-factor stock selection strategy.The revenue performance can outperform the benchmark.At the same time,this thesis constructs a multi-factor investment strategy of compound style rotation.When the large-cap value style is strong,it will be long for the stocks selected by the multi-factor model of the large-cap value,and long for the stocks selected by the small-cap growth multi-factor model when the small-cap growth style is strong..This thesis compares the return performance of the multi-factor investment strategy of the compound style rotation with the Shanghai Composite Index,the multi-factor strategy of monthly repositioning and the multi-factor strategy of the single-style rotation of large and small caps.The results show the multi-factor of the compound style rotation.The strategy beats other strategies on multiple indicators such as annualized return,excess return,Sharpe ratio,and win rate.In addition,the annualized return of the multi-factor strategy of compound style rotation reached 31.82%,the Sharpe ratio was 1.023,and the return performance was stable and the drawdown was small.Practice has proved that the multi-factor investment model of compound style rotation has strong validity and reliability.Unlike most documents that only study the rotation of a single style,this thesis takes the phenomenon of compound style rotation as the starting point and finds that the characteristics of compound style rotation are more obvious.At the same time,this thesis innovatively uses the RSI indicator and the three moving average trading system to construct technical indicators to determine the timing of the style rotation.The research in this thesis not only enriches the existing theoretical research,but also has high practical significance.This paper aims at the application and practice of quantitative investment strategies,constructing an investment model that adapts to the current situation of rapid changes in stock market styles,and obtains more excess returns.