Haitong Securities·2025-03-11 13:54Quantitative Factors and Their Construction 1. Factor Name: Small-Cap Factor - Construction Idea: The small-cap factor measures the performance of stocks with smaller market capitalization, which historically tend to outperform larger-cap stocks under certain market conditions [17][18] - Construction Process: The factor's crowding level is calculated using four indicators: valuation spread, pairwise correlation, long-term return reversal, and factor volatility. These indicators are combined into a composite score to assess the degree of crowding [18] - Evaluation: The small-cap factor showed a positive crowding level, indicating relatively strong performance and lower risk of factor failure [19] 2. Factor Name: Low-Valuation Factor - Construction Idea: This factor identifies stocks with lower valuation metrics, such as price-to-earnings or price-to-book ratios, which are expected to generate higher returns over time [17][18] - Construction Process: Similar to the small-cap factor, the low-valuation factor's crowding level is assessed using the same four indicators (valuation spread, pairwise correlation, long-term return reversal, and factor volatility) and combined into a composite score [18] - Evaluation: The low-valuation factor exhibited a slightly negative crowding level, suggesting moderate underperformance or potential risks of factor inefficiency [19] 3. Factor Name: High-Profitability Factor - Construction Idea: This factor targets stocks with strong profitability metrics, such as high return on equity (ROE) or net profit margins, which are often associated with stable and superior returns [17][18] - Construction Process: The factor's crowding level is calculated using the same methodology as the small-cap and low-valuation factors, combining the four indicators into a composite score [18] - Evaluation: The high-profitability factor showed a negative crowding level, indicating potential underperformance or risks of factor inefficiency [19] 4. Factor Name: High-Growth Factor - Construction Idea: This factor focuses on stocks with high growth rates in earnings or revenues, which are expected to deliver higher returns in growth-oriented market environments [17][18] - Construction Process: The high-growth factor's crowding level is also derived from the four indicators (valuation spread, pairwise correlation, long-term return reversal, and factor volatility) and combined into a composite score [18] - Evaluation: The high-growth factor exhibited the most negative crowding level among the factors analyzed, indicating significant underperformance and a higher risk of factor failure [19] --- Backtesting Results of Factors 1. Small-Cap Factor - Valuation Spread: 1.74 [19] - Pairwise Correlation: -0.32 [19] - Market Volatility: -0.38 [19] - Return Reversal: 1.43 [19] - Composite Score: 0.62 [19] 2. Low-Valuation Factor - Valuation Spread: -0.33 [19] - Pairwise Correlation: 0.05 [19] - Market Volatility: 0.15 [19] - Return Reversal: -0.29 [19] - Composite Score: -0.10 [19] 3. High-Profitability Factor - Valuation Spread: -1.23 [19] - Pairwise Correlation: -0.05 [19] - Market Volatility: 0.28 [19] - Return Reversal: -0.44 [19] - Composite Score: -0.36 [19] 4. High-Growth Factor - Valuation Spread: -2.04 [19] - Pairwise Correlation: 0.08 [19] - Market Volatility: -0.65 [19] - Return Reversal: -1.02 [19] - Composite Score: -0.91 [19]