Quantitative Factors and Construction Methods 1. Factor Name: Book-to-Price Ratio (BP) - **Construction Idea**: Measures the valuation of a stock by comparing its book value to its market value [12] - **Construction Process**: - Formula: $ BP = \frac{\text{Current Book Value}}{\text{Current Market Value}} $ [12] - **Evaluation**: BP is a widely used valuation factor, and its positive IC and excess return indicate its effectiveness in identifying undervalued stocks [8][10] 2. Factor Name: BP Three-Year Percentile - **Construction Idea**: Evaluates the relative valuation of a stock over the past three years [12] - **Construction Process**: - Formula: BP Three-Year Percentile = Percentile rank of the current BP within the last three years [12] - **Evaluation**: This factor provides a historical perspective on valuation, which can enhance its predictive power [8][10] 3. Factor Name: Quarterly Gross Profit Margin - **Construction Idea**: Measures profitability by comparing gross profit to sales revenue [12] - **Construction Process**: - Formula: $ \text{Quarterly Gross Profit Margin} = \frac{\text{Quarterly Gross Profit}}{\text{Quarterly Sales Revenue}} $ [12] - **Evaluation**: A positive IC and strong excess return suggest this factor is effective in identifying profitable companies [8][10] 4. Factor Name: 1-Month Average Daily Turnover - **Construction Idea**: Captures liquidity by analyzing the average daily turnover over the past month [12] - **Construction Process**: - Formula: 1-Month Average Daily Turnover = Mean of daily turnover over the last 20 trading days [12] - **Evaluation**: This factor demonstrates strong performance in short-term IC and excess return, indicating its utility in capturing liquidity-driven opportunities [8][10] 5. Factor Name: 1-Month Turnover Volatility - **Construction Idea**: Measures the variability of turnover over the past month to capture liquidity dynamics [12] - **Construction Process**: - Formula: 1-Month Turnover Volatility = Standard deviation of daily turnover over the last 20 trading days [12] - **Evaluation**: High IC and excess return suggest this factor effectively captures liquidity-related anomalies [8][10] 6. Factor Name: Fama-French Three-Factor 1-Month Residual Volatility - **Construction Idea**: Measures idiosyncratic risk by analyzing the residual volatility from the Fama-French three-factor model [12] - **Construction Process**: - Formula: Residual Volatility = Standard deviation of residuals from the regression of daily returns on the Fama-French three factors over the last 20 trading days [12] - **Evaluation**: This factor is effective in capturing risk-related anomalies, as evidenced by its strong IC and excess return [8][10] --- Factor Backtesting Results IC Performance - **BP**: Weekly IC = 5.32%, Monthly IC = 8.04%, Annual IC = 1.81% [8] - **BP Three-Year Percentile**: Weekly IC = 6.26%, Monthly IC = 10.63%, Annual IC = 3.10% [8] - **Quarterly Gross Profit Margin**: Weekly IC = 5.61%, Monthly IC = 3.29%, Annual IC = 0.64% [8] - **1-Month Average Daily Turnover**: Weekly IC = 12.54%, Monthly IC = 14.06%, Annual IC = 2.03% [8] - **1-Month Turnover Volatility**: Weekly IC = 10.49%, Monthly IC = 13.42%, Annual IC = 2.70% [8] - **Fama-French Three-Factor 1-Month Residual Volatility**: Weekly IC = 8.93%, Monthly IC = 13.16%, Annual IC = 3.32% [8] Excess Return Performance - **BP**: Weekly Excess Return = -0.04%, Monthly Excess Return = 1.27%, Annual Excess Return = 2.22% [10] - **BP Three-Year Percentile**: Weekly Excess Return = -0.25%, Monthly Excess Return = 2.07%, Annual Excess Return = 3.63% [10] - **Quarterly Gross Profit Margin**: Weekly Excess Return = 0.68%, Monthly Excess Return = 1.05%, Annual Excess Return = 4.64% [10] - **1-Month Average Daily Turnover**: Weekly Excess Return = 0.64%, Monthly Excess Return = 2.96%, Annual Excess Return = 7.46% [10] - **1-Month Turnover Volatility**: Weekly Excess Return = 0.55%, Monthly Excess Return = 2.95%, Annual Excess Return = 9.61% [10] - **Fama-French Three-Factor 1-Month Residual Volatility**: Weekly Excess Return = 0.29%, Monthly Excess Return = 2.75%, Annual Excess Return = 7.03% [10]

Quantitative Factors and Construction Methods - **Factor Name**: bp **Construction Idea**: Measures valuation by comparing net assets to market capitalization **Construction Process**: Calculated as: $ bp = \frac{\text{Net Assets}}{\text{Market Capitalization}} $ **Evaluation**: Provides a direct valuation metric for stocks[13] - **Factor Name**: bp three-year percentile **Construction Idea**: Evaluates the relative valuation of a stock over the past three years **Construction Process**: Represents the current bp value's percentile rank within the last three years[13] **Evaluation**: Useful for identifying stocks with consistent valuation trends[13] - **Factor Name**: Quarterly ep **Construction Idea**: Measures profitability relative to net assets **Construction Process**: Calculated as: $ \text{Quarterly ep} = \frac{\text{Quarterly Net Profit}}{\text{Net Assets}} $ **Evaluation**: Indicates profitability efficiency[13] - **Factor Name**: Quarterly ep one-year percentile **Construction Idea**: Tracks the relative profitability of a stock over the past year **Construction Process**: Represents the current quarterly ep value's percentile rank within the last year[13] **Evaluation**: Highlights short-term profitability trends[13] - **Factor Name**: Quarterly sp **Construction Idea**: Measures revenue generation relative to net assets **Construction Process**: Calculated as: $ \text{Quarterly sp} = \frac{\text{Quarterly Revenue}}{\text{Net Assets}} $ **Evaluation**: Reflects operational efficiency[13] - **Factor Name**: Quarterly sp one-year percentile **Construction Idea**: Tracks the relative revenue generation of a stock over the past year **Construction Process**: Represents the current quarterly sp value's percentile rank within the last year[13] **Evaluation**: Useful for identifying short-term revenue trends[13] - **Factor Name**: Quarterly ROA **Construction Idea**: Measures profitability relative to total assets **Construction Process**: Calculated as: $ \text{Quarterly ROA} = \frac{\text{Quarterly Net Profit}}{\text{Total Assets}} $ **Evaluation**: Indicates asset utilization efficiency[13] - **Factor Name**: Quarterly ROE **Construction Idea**: Measures profitability relative to shareholders' equity **Construction Process**: Calculated as: $ \text{Quarterly ROE} = \frac{\text{Quarterly Net Profit}}{\text{Net Assets}} $ **Evaluation**: Reflects return on equity for shareholders[13] - **Factor Name**: Quarterly net profit YoY growth **Construction Idea**: Tracks year-over-year growth in net profit **Construction Process**: Calculated as: $ \text{Net Profit YoY Growth} = \frac{\text{Current Net Profit} - \text{Previous Year Net Profit}}{\text{Previous Year Net Profit}} $ **Evaluation**: Highlights growth trends in profitability[13] - **Factor Name**: Quarterly revenue YoY growth **Construction Idea**: Tracks year-over-year growth in revenue **Construction Process**: Calculated as: $ \text{Revenue YoY Growth} = \frac{\text{Current Revenue} - \text{Previous Year Revenue}}{\text{Previous Year Revenue}} $ **Evaluation**: Reflects growth trends in operational performance[13] - **Factor Name**: Quarterly ROE YoY growth **Construction Idea**: Tracks year-over-year growth in ROE **Construction Process**: Calculated as: $ \text{ROE YoY Growth} = \frac{\text{Current ROE} - \text{Previous Year ROE}}{\text{Previous Year ROE}} $ **Evaluation**: Indicates improvement in equity returns[13] - **Factor Name**: Standardized unexpected earnings **Construction Idea**: Measures deviation of current earnings from historical growth trends **Construction Process**: $ \text{Standardized Unexpected Earnings} = \frac{\text{Current Earnings} - (\text{Last Year Earnings} + \text{8-Quarter Average Growth})}{\text{Standard Deviation of 8-Quarter Growth}} $ **Evaluation**: Useful for identifying earnings surprises[13] - **Factor Name**: Standardized unexpected revenue **Construction Idea**: Measures deviation of current revenue from historical growth trends **Construction Process**: $ \text{Standardized Unexpected Revenue} = \frac{\text{Current Revenue} - (\text{Last Year Revenue} + \text{8-Quarter Average Growth})}{\text{Standard Deviation of 8-Quarter Growth}} $ **Evaluation**: Highlights revenue surprises[13] - **Factor Name**: Dividend yield **Construction Idea**: Measures dividend payout relative to market capitalization **Construction Process**: Calculated as: $ \text{Dividend Yield} = \frac{\text{Annual Dividend}}{\text{Market Capitalization}} $ **Evaluation**: Indicates shareholder returns through dividends[13] - **Factor Name**: 1-month turnover rate volatility **Construction Idea**: Tracks the standard deviation of turnover rates over the past month **Construction Process**: $ \text{Turnover Rate Volatility} = \text{Standard Deviation of Daily Turnover Rates (Last 20 Days)} $ **Evaluation**: Reflects liquidity stability[13] Factor Backtesting Results - **bp**: Weekly IC 5.34%, Monthly IC 5.55%, Annual IC 1.76%, Historical IC 1.95%[8] Weekly excess return 0.20%, Monthly excess return 0.46%, Annual excess return 3.36%, Historical cumulative excess return 24.65%[10] - **bp three-year percentile**: Weekly IC 16.49%, Monthly IC 7.73%, Annual IC 2.81%, Historical IC 1.43%[8] Weekly excess return 1.02%, Monthly excess return 1.44%, Annual excess return 4.22%, Historical cumulative excess return -4.34%[10] - **Quarterly ep**: Weekly IC 14.19%, Monthly IC 7.50%, Annual IC 0.63%, Historical IC 1.32%[8] Weekly excess return 0.45%, Monthly excess return 2.65%, Annual excess return 3.46%, Historical cumulative excess return 30.85%[10] - **Quarterly ep one-year percentile**: Weekly IC 6.12%, Monthly IC 2.81%, Annual IC 1.13%, Historical IC 1.69%[8] Weekly excess return 0.40%, Monthly excess return 0.23%, Annual excess return 7.17%, Historical cumulative excess return 34.94%[10] - **Quarterly sp**: Weekly IC 4.90%, Monthly IC 1.26%, Annual IC 0.33%, Historical IC 0.74%[8] Weekly excess return 0.00%, Monthly excess return -0.55%, Annual excess return 1.08%, Historical cumulative excess return -2.52%[10] - **Quarterly sp one-year percentile**: Weekly IC 9.34%, Monthly IC 4.43%, Annual IC 2.73%, Historical IC 1.72%[8] Weekly excess return 0.27%, Monthly excess return 0.69%, Annual excess return 6.53%, Historical cumulative excess return 1.81%[10] - **Quarterly ROA**: Weekly IC 13.83%, Monthly IC 6.81%, Annual IC 0.59%, Historical IC 1.24%[8] Weekly excess return 0.38%, Monthly excess return 2.52%, Annual excess return 4.27%, Historical cumulative excess return 25.60%[10] - **Quarterly ROE**: Weekly IC 13.62%, Monthly IC 6.93%, Annual IC 0.58%, Historical IC 1.39%[8] Weekly excess return 0.24%, Monthly excess return 1.81%, Annual excess return 2.47%, Historical cumulative excess return 31.72%[10]

Quantitative Models and Factors Summary Quantitative Models and Construction Methods Model 1: Risk Premium Model - **Model Name**: Risk Premium Model - **Model Construction Idea**: The model measures the risk premium of various broad-based indices relative to the risk-free rate, using the yield of the 10-year government bond as a reference. - **Model Construction Process**: - Calculate the risk premium for each index as the difference between the index's return and the 10-year government bond yield. - Observe the mean reversion phenomenon of the risk premium. - Analyze the volatility of the risk premium over time. - Formula: $$ \text{Risk Premium} = \text{Index Return} - \text{10-year Government Bond Yield} $$ - **Model Evaluation**: The model effectively captures the relative investment value and deviation of the indices from the risk-free rate, showing clear mean reversion characteristics.[14][15][16] Model 2: PE-TTM Model - **Model Name**: PE-TTM Model - **Model Construction Idea**: The model uses the Price-to-Earnings ratio based on trailing twelve months (PE-TTM) as a valuation reference to assess the investment value of various indices. - **Model Construction Process**: - Calculate the PE-TTM for each index. - Compare the current PE-TTM with historical percentiles to determine the valuation level. - Observe the trend and volatility of the PE-TTM over time. - Formula: $$ \text{PE-TTM} = \frac{\text{Current Price}}{\text{Earnings per Share (TTM)}} $$ - **Model Evaluation**: The model provides a clear indication of the valuation level of the indices, helping to identify overvalued or undervalued conditions.[20][21][22] Model Backtesting Results Risk Premium Model - **Current Risk Premium**: - **Shanghai 50**: -0.17% - **CSI 300**: -0.41% - **CSI 500**: -0.78% - **CSI 1000**: -1.53% - **CSI 2000**: -1.85% - **CSI All Share**: -0.89% - **ChiNext**: -1.16% - **1-Year Percentile**: - **Shanghai 50**: 43.25% - **CSI 300**: 34.92% - **CSI 500**: 27.78% - **CSI 1000**: 15.48% - **CSI 2000**: 13.89% - **CSI All Share**: 19.44% - **ChiNext**: 24.21% - **5-Year Percentile**: - **Shanghai 50**: 44.37% - **CSI 300**: 35.08% - **CSI 500**: 22.70% - **CSI 1000**: 12.94% - **CSI 2000**: 9.76% - **CSI All Share**: 18.33% - **ChiNext**: 21.75%[16] PE-TTM Model - **Current PE-TTM**: - **Shanghai 50**: 10.86 - **CSI 300**: 12.60 - **CSI 500**: 28.92 - **CSI 1000**: 39.13 - **CSI 2000**: 96.99 - **CSI All Share**: 18.46 - **ChiNext**: 33.18 - **1-Year Historical Percentile**: - **Shanghai 50**: 76.45% - **CSI 300**: 69.83% - **CSI 500**: 96.28% - **CSI 1000**: 79.34% - **CSI 2000**: 97.93% - **CSI All Share**: 86.78% - **ChiNext**: 68.60% - **5-Year Historical Percentile**: - **Shanghai 50**: 64.96% - **CSI 300**: 58.43% - **CSI 500**: 86.28% - **CSI 1000**: 73.39% - **CSI 2000**: 51.82% - **CSI All Share**: 74.38% - **ChiNext**: 30.99%[22]

Quantitative Models and Construction Methods 1. Model Name: Davis Double Hit Strategy - **Model Construction Idea**: The strategy involves buying stocks with growth potential at a low P/E ratio and selling them after growth materializes and the P/E ratio increases, achieving a "double hit" effect from EPS and P/E[7] - **Model Construction Process**: - Identify stocks with accelerating earnings growth - Evaluate the reasonableness of stock pricing using the PEG indicator - Select stocks with high earnings growth potential and controlled downside P/E risk[7] - **Model Evaluation**: The strategy demonstrates strong stability, with annualized excess returns exceeding 11% in all seven years of the backtest period[8] 2. Model Name: Net Profit Gap Strategy - **Model Construction Idea**: This strategy combines fundamental and technical factors, focusing on stocks with earnings surprises ("net profit") and a significant upward price gap after earnings announcements ("gap")[11] - **Model Construction Process**: - Screen stocks with earnings surprises based on earnings forecasts and financial reports from the past two months - Rank stocks by the magnitude of the price gap on the first trading day after the earnings announcement - Construct an equal-weight portfolio of the top 50 stocks[11] - **Model Evaluation**: The strategy achieves high annualized returns and excess returns, indicating strong performance and market recognition of earnings surprises[14] 3. Model Name: CSI 300 Enhanced Portfolio - **Model Construction Idea**: Based on investor preferences, the strategy uses factors such as PBROE and PEG to identify undervalued stocks with strong profitability and growth potential[16] - **Model Construction Process**: - Construct the PBROE factor as the difference between the percentile ranks of PB and ROE to identify stocks with low valuation and high profitability - Construct the PEG factor as the difference between the percentile ranks of PE and growth rate to find undervalued stocks with reliable growth potential - Combine these factors to build an enhanced CSI 300 portfolio[16] - **Model Evaluation**: The strategy demonstrates stable historical excess returns, aligning with investor preferences for growth and value[20] --- Backtest Results of Models 1. Davis Double Hit Strategy - **Annualized Return**: 26.45% (2010-2017)[8] - **Annualized Excess Return**: 21.08% (2010-2017)[8] - **Year-to-Date Absolute Return**: 7.15% (2025)[8] - **Year-to-Date Excess Return**: 4.80% (2025)[8] - **Weekly Excess Return**: -0.65% (2025)[8] - **Monthly Excess Return**: -1.07% (2025)[8] 2. Net Profit Gap Strategy - **Annualized Return**: 28.60% (2010-present)[14] - **Annualized Excess Return**: 26.80% (2010-present)[14] - **Year-to-Date Absolute Return**: 9.39% (2025)[14] - **Year-to-Date Excess Return**: 7.05% (2025)[14] - **Weekly Excess Return**: 3.07% (2025)[14] 3. CSI 300 Enhanced Portfolio - **Annualized Return**: 8.99% (full sample)[18] - **Annualized Excess Return**: 8.42% (full sample)[18] - **Year-to-Date Absolute Return**: -0.98% (2025)[20] - **Year-to-Date Excess Return**: 0.16% (2025)[20] - **Weekly Excess Return**: 1.94% (2025)[20] - **Monthly Excess Return**: -2.49% (2025)[20]