Quantitative Models and Factor Analysis Quantitative Models and Construction Methods Model Name: Hong Kong Stock Market Quantitative Timing Model - **Model Construction Idea**: The model is built around the Hang Seng Index, selecting indicators from five dimensions: fundamentals, liquidity, capital flows, sentiment, and valuation to analyze the factors influencing the rise and fall of the Hong Kong stock market[15]. - **Model Construction Process**: - **Fundamentals**: OECD China Economic Leading Indicator - **Liquidity**: US-Hong Kong interest rate spread, US Dollar Index, US Treasury yields - **Sentiment**: Hang Seng Index options put-call ratio (PCR), Hong Kong stock short-selling turnover ratio - **Capital Flows**: Net foreign capital inflows, Southbound capital - **Valuation**: AH premium index[14] - **Model Evaluation**: The model successfully captured the policy-driven rebound in the Hong Kong stock market from September 23, 2024, to October 10, 2024, and avoided the subsequent downturn by maintaining a predominantly cash position. The model turned bullish again in early 2025 as passive foreign capital accelerated its layout in Hong Kong stocks[15]. Model Backtesting Results - **Hong Kong Stock Market Quantitative Timing Model**: - Successfully captured the policy-driven rebound in the Hong Kong stock market from September 23, 2024, to October 10, 2024[15] - Maintained a predominantly cash position during the subsequent market adjustment, avoiding the downturn[15] - Turned bullish again in early 2025 as passive foreign capital accelerated its layout in Hong Kong stocks[15] Quantitative Factors and Construction Methods Factor Name: OECD China Economic Leading Indicator - **Factor Construction Idea**: This factor is used to gauge the economic outlook of China, which is a significant driver for the Hong Kong stock market[15]. - **Factor Construction Process**: The OECD China Economic Leading Indicator is used directly as a measure of economic activity and outlook[15]. Factor Name: Hang Seng Index Options Put-Call Ratio (PCR) - **Factor Construction Idea**: This factor measures market sentiment by comparing the volume of put options to call options on the Hang Seng Index[15]. - **Factor Construction Process**: The put-call ratio (PCR) is calculated as follows: $$ \text{PCR} = \frac{\text{Volume of Put Options}}{\text{Volume of Call Options}} $$ - **Explanation**: A higher PCR indicates a bearish sentiment, while a lower PCR indicates a bullish sentiment[15]. Factor Name: Net Foreign Capital Inflows - **Factor Construction Idea**: This factor tracks the net amount of foreign capital flowing into the Hong Kong stock market, indicating the level of foreign investor interest and confidence[15]. - **Factor Construction Process**: The net foreign capital inflows are measured by the total amount of foreign capital entering the market minus the total amount exiting the market[15]. Factor Backtesting Results - **OECD China Economic Leading Indicator**: - Successfully indicated the economic outlook and supported the model's timing decisions[15] - **Hang Seng Index Options Put-Call Ratio (PCR)**: - Provided effective signals for market sentiment, aiding in the timing of market entries and exits[15] - **Net Foreign Capital Inflows**: - Accurately reflected foreign investor interest and confidence, contributing to the model's performance[15]