Quantitative Models and Factor Construction Factor Name: DELTAROE - **Construction Idea**: Measures the change in return on equity (ROE) over a specific period, reflecting the company's profitability dynamics[6][19][46] - **Construction Process**: - Calculate the difference in ROE between the current period and the previous period - Formula: $\Delta ROE = ROE_{current} - ROE_{previous}$[19][46] - **Evaluation**: Demonstrates strong performance across multiple indices, indicating its effectiveness in capturing profitability trends[6][46][49] Factor Name: Standardized Unexpected Earnings (SUE) - **Construction Idea**: Quantifies the deviation of actual earnings from expected earnings, standardized by the standard deviation of forecast errors[19] - **Construction Process**: - Formula: $SUE = \frac{E_{actual} - E_{expected}}{\sigma_{forecast\ errors}}$ - Where $E_{actual}$ is the actual earnings, $E_{expected}$ is the consensus forecast, and $\sigma_{forecast\ errors}$ is the standard deviation of forecast errors[19] - **Evaluation**: Effective in identifying earnings surprises, with positive performance in various market conditions[6][19] Factor Name: Trend - **Construction Idea**: Captures momentum by comparing short-term and long-term exponential weighted moving averages (EWMA) of stock prices[14] - **Construction Process**: - Two variations: - $Trend_{120} = \frac{EWMA_{halflife=20}}{EWMA_{halflife=120}}$ - $Trend_{240} = \frac{EWMA_{halflife=20}}{EWMA_{halflife=240}}$ - Where $EWMA$ is the exponentially weighted moving average with specified half-life[14] - **Evaluation**: Exhibits strong positive returns, indicating market preference for momentum strategies[9][11] Factor Name: Liquidity - **Construction Idea**: Measures stock liquidity through turnover rates and regression-based liquidity beta[14] - **Construction Process**: - Average log turnover over 243 days - Regression of individual stock turnover against market turnover to derive liquidity beta[14] - **Evaluation**: Mixed performance, with sensitivity to market conditions[10][14] Factor Name: Volatility - **Construction Idea**: Captures price fluctuations using various measures of historical volatility[14] - **Construction Process**: - Standard deviation of daily returns over 243 days - Range-based volatility: $Range = \frac{High_{243} - Low_{243}}{Low_{243}}$ - Maximum and minimum return averages over six days within 243 days[14] - **Evaluation**: Underperforms in high-volatility environments, indicating reduced investor appetite for risk[10][14] --- Factor Backtesting Results DELTAROE - **Performance**: - CSI 300: Weekly return 0.41%, monthly return 1.59%[6][22] - CSI 500: Weekly return 0.95%, monthly return 1.19%[6][26] - CSI 800: Weekly return 1.08%, monthly return 1.62%[6][30] - CSI 1000: Weekly return 1.79%, monthly return 1.54%[6][34] - CNI 2000: Weekly return 4.71%, monthly return 7.07%[6][37] - CSI All Share: Weekly return 1.84%, monthly return 2.41%[6][46] Standardized Unexpected Earnings (SUE) - **Performance**: - CSI 500: Weekly return 1.20%, monthly return 1.59%[6][26] - CSI 800: Weekly return 0.34%, monthly return 0.98%[6][30] - CNI 2000: Weekly return 1.65%, monthly return 14.68%[6][37] - CSI All Share: Weekly return 0.96%, monthly return 1.14%[6][46] Trend - **Performance**: - Weekly return 1.15%, monthly return 4.58%, annualized return 19.73%[9][11] Liquidity - **Performance**: - Weekly return -0.43%, monthly return -3.25%, annualized return 37.53%[10][11] Volatility - **Performance**: - Weekly return -0.95%, monthly return -2.71%, annualized return 31.87%[10][11] --- MFE Portfolio Construction - **Optimization Model**: - Objective: Maximize single-factor exposure - Formula: $\begin{array}{ll}max&f^{T}w\\ s.t.&s_{l}\leq X(w-w_{b})\leq s_{h}\\ &h_{l}\leq H(w-w_{b})\leq h_{h}\\ &w_{l}\leq w-w_{b}\leq w_{h}\\ &b_{l}\leq B_{b}w\leq b_{h}\\ &0\leq w\leq l\\ &1^{T}w=1\\ &\Sigma|w-w_{0}|\leq to_{h}\end{array}$[61][62] - Constraints: - Style and industry exposure limits - Stock weight deviation limits - Turnover rate limits[64][65] - **Backtesting**: - Monthly rebalancing - Transaction cost: 0.3% per side - Metrics: Historical returns, risk-adjusted performance[65]