Quantitative Models and Factor Analysis Quantitative Factors and Construction Methods - **Factor Name**: Non-liquidity Shock **Construction Idea**: Measures the impact of illiquidity on stock returns **Construction Process**: Calculated as the average absolute daily return over the past 20 trading days divided by the corresponding daily trading volume[6][16][19] **Evaluation**: Demonstrated strong performance across multiple indices, indicating its effectiveness in capturing illiquidity effects[6][19][21] - **Factor Name**: Six-Month UMR **Construction Idea**: Captures momentum adjusted for risk over a six-month window **Construction Process**: Risk-adjusted momentum is calculated using a six-month rolling window, incorporating volatility adjustments[6][16][19] **Evaluation**: Consistently performed well in recent periods, showing robustness across different market conditions[6][19][21] - **Factor Name**: One-Year UMR **Construction Idea**: Similar to Six-Month UMR but uses a one-year window for risk-adjusted momentum **Construction Process**: Momentum is adjusted for risk using a one-year rolling window, factoring in volatility[6][16][19] **Evaluation**: Effective in capturing long-term momentum trends, though performance varies by index[6][19][21] - **Factor Name**: Three-Month Volatility **Construction Idea**: Measures short-term price fluctuations **Construction Process**: Calculated as the standard deviation of daily returns over the past 60 trading days[6][16][19] **Evaluation**: Demonstrated strong negative correlation with returns, indicating its utility in identifying high-risk assets[6][19][21] - **Factor Name**: One-Month Turnover **Construction Idea**: Reflects trading activity and liquidity over a short period **Construction Process**: Average daily turnover rate over the past 20 trading days[6][16][19] **Evaluation**: Effective in capturing liquidity dynamics, though performance varies across indices[6][19][21] Factor Backtesting Results - **Non-liquidity Shock**: - Recent Week: 0.58% (HS300), 0.91% (CSI500), 0.93% (CSI800), 0.87% (CSI1000), 1.14% (CSI All)[19][23][27][31][42] - Recent Month: 0.31% (HS300), 0.64% (CSI500), 0.77% (CSI800), 2.40% (CSI1000), 1.33% (CSI All)[19][23][27][31][42] - **Six-Month UMR**: - Recent Week: 0.54% (HS300), -0.09% (CSI500), 0.57% (CSI800), 0.73% (CSI1000), 0.73% (CSI All)[19][23][27][31][42] - Recent Month: 1.53% (HS300), 2.09% (CSI500), 2.35% (CSI800), 3.49% (CSI1000), 3.85% (CSI All)[19][23][27][31][42] - **One-Year UMR**: - Recent Week: 0.46% (HS300), 0.06% (CSI500), 0.88% (CSI800), 0.52% (CSI1000), 0.76% (CSI All)[19][23][27][31][42] - Recent Month: 1.15% (HS300), 2.19% (CSI500), 2.50% (CSI800), 2.85% (CSI1000), 3.74% (CSI All)[19][23][27][31][42] - **Three-Month Volatility**: - Recent Week: 0.24% (HS300), 0.78% (CSI500), 0.59% (CSI800), 0.65% (CSI1000), 0.86% (CSI All)[19][23][27][31][42] - Recent Month: 0.84% (HS300), 3.24% (CSI500), 2.17% (CSI800), 3.63% (CSI1000), 3.60% (CSI All)[19][23][27][31][42] - **One-Month Turnover**: - Recent Week: -0.05% (HS300), 0.48% (CSI500), 0.04% (CSI800), 0.57% (CSI1000), 0.50% (CSI All)[19][23][27][31][42] - Recent Month: 0.19% (HS300), 2.47% (CSI500), 0.19% (CSI800), 3.87% (CSI1000), 1.65% (CSI All)[19][23][27][31][42] Quantitative Model Construction - **Model Name**: Maximized Factor Exposure Portfolio (MFE) **Construction Idea**: Optimizes portfolio weights to maximize exposure to a single factor while controlling for constraints **Construction Process**: - Objective Function: Maximize $f^T w$, where $f$ is the factor value and $w$ is the weight vector - Constraints: Include style exposure, industry deviation, stock weight limits, turnover, and full investment constraints - Formula: $\begin{array}{ll}max&f^{T}w\\ s.t.&s_{l}\leq X(w-w_{b})\leq s_{h}\\ &h_{l}\leq H(w-w_{b})\leq h_{h}\\ &w_{l}\leq w-w_{b}\leq w_{h}\\ &b_{l}\leq B_{b}w\leq b_{h}\\ &0\leq w\leq l\\ &1^{T}w=1\\ &\Sigma|w-w_{0}|\leq to_{h}\end{array}$[57][58][61] **Evaluation**: Provides a robust framework for testing factor effectiveness under realistic constraints[57][58][61] Model Backtesting Results - **MFE Portfolio**: - Demonstrated strong performance in capturing factor-specific returns while adhering to constraints such as turnover and industry exposure[57][58][61]

Quantitative Models and Construction Methods Factor: 3-Month Earnings Revision - **Construction Idea**: Measures the upward or downward revisions in earnings estimates over the past three months, reflecting changes in analysts' expectations[6][23][42] - **Construction Process**: Calculated as the difference between the number of upward and downward revisions in earnings estimates over the last three months, normalized by the total number of estimates[19][42] - **Evaluation**: Demonstrates strong performance in multiple index universes, indicating its effectiveness in capturing short-term earnings momentum[6][23][42] Factor: UMR (Up-Market Ratio) - **Construction Idea**: Captures momentum by analyzing risk-adjusted returns over different time windows (1 month, 3 months, 6 months, 1 year)[6][19][42] - **Construction Process**: - **1-Month UMR**: Risk-adjusted momentum over a 1-month window - **3-Month UMR**: Risk-adjusted momentum over a 3-month window - **6-Month UMR**: Risk-adjusted momentum over a 6-month window - **1-Year UMR**: Risk-adjusted momentum over a 12-month window[19][42] - **Evaluation**: Consistently performs well across multiple index universes, particularly in capturing medium-term momentum trends[6][23][42] Factor: EPTTM (Earnings-to-Price Trailing Twelve Months) - **Construction Idea**: A valuation factor that measures the earnings yield based on trailing twelve months' earnings[19][42] - **Construction Process**: Calculated as the ratio of trailing twelve months' earnings to the current market price[19][42] - **Evaluation**: Shows strong performance in certain index universes, particularly in value-oriented strategies[6][23][42] Factor: DeltaROE - **Construction Idea**: Measures the change in return on equity (ROE) over a specific period, reflecting improvements or deteriorations in profitability[19][42] - **Construction Process**: Calculated as the difference in ROE between the current period and the same period in the previous year[19][42] - **Evaluation**: Effective in identifying companies with improving profitability trends[6][23][42] Factor: Analyst Coverage (3-Month) - **Construction Idea**: Tracks the number of analysts covering a stock over the past three months, reflecting market attention and sentiment[19][42] - **Construction Process**: Count of unique analysts issuing reports on a stock in the last three months[19][42] - **Evaluation**: Performs well in identifying stocks with increasing market interest[6][23][42] --- Factor Backtesting Results 3-Month Earnings Revision - **Recent 1 Week**: 1.94% (China Securities All Index)[43] - **Recent 1 Month**: 0.82% (China Securities All Index)[43] - **Year-to-Date**: 2.50% (China Securities All Index)[43] UMR (Up-Market Ratio) - **1-Month UMR**: - **Recent 1 Week**: 1.30% (China Securities All Index)[43] - **Recent 1 Month**: 2.57% (China Securities All Index)[43] - **Year-to-Date**: 3.85% (China Securities All Index)[43] - **3-Month UMR**: - **Recent 1 Week**: 0.75% (China Securities All Index)[43] - **Recent 1 Month**: 2.14% (China Securities All Index)[43] - **Year-to-Date**: 2.48% (China Securities All Index)[43] - **6-Month UMR**: - **Recent 1 Week**: 0.72% (China Securities All Index)[43] - **Recent 1 Month**: 4.19% (China Securities All Index)[43] - **Year-to-Date**: 1.12% (China Securities All Index)[43] - **1-Year UMR**: - **Recent 1 Week**: 0.74% (China Securities All Index)[43] - **Recent 1 Month**: 3.92% (China Securities All Index)[43] - **Year-to-Date**: 0.80% (China Securities All Index)[43] EPTTM - **Recent 1 Week**: 0.83% (China Securities All Index)[43] - **Recent 1 Month**: 3.70% (China Securities All Index)[43] - **Year-to-Date**: -0.22% (China Securities All Index)[43] DeltaROE - **Recent 1 Week**: 0.19% (China Securities All Index)[43] - **Recent 1 Month**: -0.31% (China Securities All Index)[43] - **Year-to-Date**: 1.66% (China Securities All Index)[43] Analyst Coverage (3-Month) - **Recent 1 Week**: 1.86% (China Securities All Index)[43] - **Recent 1 Month**: 2.24% (China Securities All Index)[43] - **Year-to-Date**: 4.89% (China Securities All Index)[43] --- MFE Portfolio Construction - **Construction Method**: - Maximizes single-factor exposure while controlling for industry, style, and stock-specific deviations relative to the benchmark index[56][57][59] - Constraints include: - Style exposure limits - Industry exposure limits - Stock weight deviation limits - Turnover limits[56][57][59] - **Optimization Model**: $\begin{array}{ll}max&f^{T}w\\ s.t.&s_{l}\leq X(w-w_{b})\leq s_{h}\\ &h_{l}\leq H(w-w_{b})\leq h_{h}\\ &w_{l}\leq w-w_{b}\leq w_{h}\\ &b_{l}\leq B_{b}w\leq b_{h}\\ &0\leq w\leq l\\ &1^{T}w=1\\ &\Sigma|w-w_{0}|\leq to_{h}\end{array}$[56][57] - **Evaluation**: Effective in isolating factor performance under realistic portfolio constraints[56][57][60]

Quantitative Factors and Models Summary Quantitative Factors and Their Construction - **Factor Name: Trend** - **Construction Idea**: Measures market preference for trend-following strategies, using exponential weighted moving averages (EWMA) with different half-lives [12] - **Construction Process**: - **Trend_120**: $ EWMA(halflife=20) / EWMA(halflife=120) $ - **Trend_240**: $ EWMA(halflife=20) / EWMA(halflife=240) $ [12] - **Evaluation**: Demonstrates strong performance in short-term market rebounds, indicating increased preference for trend-following strategies [9] - **Factor Name: Certainty** - **Construction Idea**: Captures market confidence through institutional holdings and analyst coverage [12] - **Construction Process**: - **Instholder Pct**: Proportion of public fund holdings - **Cov**: Analyst coverage adjusted for market capitalization - **Listdays**: Number of days since listing [12] - **Evaluation**: Shows recovery in market confidence during the observed period [9] - **Factor Name: Value** - **Construction Idea**: Measures valuation attractiveness using metrics like book-to-price (BP) and earnings yield (EP) [12] - **Construction Process**: - **BP**: $ Net\ Assets / Market\ Capitalization $ - **EP**: $ Earnings / Market\ Capitalization $ [12] - **Evaluation**: Underperformed during the observed period, reflecting reduced market preference for value stocks [9] - **Factor Name: Volatility** - **Construction Idea**: Captures market risk perception through historical and idiosyncratic volatility measures [12] - **Construction Process**: - **Stdvol**: Standard deviation of daily returns over 243 days - **Ivff**: Idiosyncratic volatility from Fama-French 3-factor model over 243 days - **Range**: $ (High\ Price - Low\ Price) / Low\ Price $ over 243 days [12] - **Evaluation**: Declined significantly, indicating increased market aversion to high-volatility assets [10] - **Factor Name: Size** - **Construction Idea**: Measures the impact of company size on returns using logarithmic market capitalization [12] - **Construction Process**: $ Log(Market\ Capitalization) $ [12] - **Evaluation**: Continued to underperform, reflecting negative sentiment towards smaller companies [10] Factor Backtesting Results - **Trend Factor** - Weekly return: 1.49% [9] - Monthly return: -4.81% [11] - Year-to-date return: -10.89% [11] - Historical annualized return: 13.86% [11] - **Certainty Factor** - Weekly return: 1.35% [9] - Monthly return: -2.32% [11] - Year-to-date return: -3.44% [11] - Historical annualized return: 3.20% [11] - **Value Factor** - Weekly return: 0.35% [9] - Monthly return: -2.42% [11] - Year-to-date return: -10.53% [11] - Historical annualized return: 7.28% [11] - **Volatility Factor** - Weekly return: -0.51% [10] - Monthly return: 5.01% [11] - Year-to-date return: 16.90% [11] - Historical annualized return: -12.84% [11] - **Size Factor** - Weekly return: -4.61% [10] - Monthly return: -12.65% [11] - Year-to-date return: -22.68% [11] - Historical annualized return: -29.42% [11] Composite Factor Portfolio Construction - **Model Name: Maximized Factor Exposure (MFE) Portfolio** - **Construction Idea**: Optimizes portfolio to maximize exposure to a single factor while controlling for industry, style, and turnover constraints [52] - **Construction Process**: - Objective function: $ max\ f^{T}w $ - Constraints: - Style exposure: $ s_{l} \leq X(w-w_{b}) \leq s_{h} $ - Industry exposure: $ h_{l} \leq H(w-w_{b}) \leq h_{h} $ - Stock weight deviation: $ w_{l} \leq w-w_{b} \leq w_{h} $ - Turnover limit: $ \Sigma|w-w_{0}| \leq to_{h} $ [52][53] - **Evaluation**: Provides a robust framework for testing factor effectiveness under realistic portfolio constraints [53] MFE Portfolio Backtesting Results - **MFE Portfolio for Trend Factor** - Weekly return: 1.49% [9] - Monthly return: -4.81% [11] - Year-to-date return: -10.89% [11] - Historical annualized return: 13.86% [11]