Quantitative Factors and Construction Methods 1. Factor Name: **bp** - **Factor Construction Idea**: Measures the valuation level of a stock based on its book-to-price ratio [13] - **Factor Construction Process**: Calculated as the current net asset divided by the current total market value $ bp = \frac{\text{Current Net Asset}}{\text{Current Total Market Value}} $ [13] 2. Factor Name: **bp Three-Year Percentile** - **Factor Construction Idea**: Evaluates the relative valuation of a stock over the past three years [13] - **Factor Construction Process**: Represents the percentile rank of the current bp value within the stock's bp distribution over the last three years [13] 3. Factor Name: **Quarterly EP** - **Factor Construction Idea**: Reflects the profitability of a stock relative to its equity [13] - **Factor Construction Process**: Calculated as the quarterly net profit divided by the net asset $ \text{Quarterly EP} = \frac{\text{Quarterly Net Profit}}{\text{Net Asset}} $ [13] 4. Factor Name: **Quarterly EP One-Year Percentile** - **Factor Construction Idea**: Measures the relative profitability of a stock over the past year [13] - **Factor Construction Process**: Represents the percentile rank of the current quarterly EP value within the stock's EP distribution over the last year [13] 5. Factor Name: **Quarterly SP** - **Factor Construction Idea**: Indicates the revenue generation efficiency of a stock relative to its equity [13] - **Factor Construction Process**: Calculated as the quarterly operating revenue divided by the net asset $ \text{Quarterly SP} = \frac{\text{Quarterly Operating Revenue}}{\text{Net Asset}} $ [13] 6. Factor Name: **Quarterly SP One-Year Percentile** - **Factor Construction Idea**: Evaluates the relative revenue efficiency of a stock over the past year [13] - **Factor Construction Process**: Represents the percentile rank of the current quarterly SP value within the stock's SP distribution over the last year [13] 7. Factor Name: **Fama-French Three-Factor One-Month Residual Volatility** - **Factor Construction Idea**: Measures the idiosyncratic risk of a stock based on its residual volatility after regressing against the Fama-French three-factor model [13] - **Factor Construction Process**: Calculated as the standard deviation of the residuals from the regression of daily returns over the past 20 trading days on the Fama-French three factors $ \text{Residual Volatility} = \sqrt{\frac{\sum (\text{Actual Return} - \text{Predicted Return})^2}{n}} $ where "Predicted Return" is derived from the Fama-French three-factor model [13] 8. Factor Name: **One-Month Excess Return Volatility** - **Factor Construction Idea**: Captures the volatility of a stock's excess return over the past month [13] - **Factor Construction Process**: Calculated as the standard deviation of the excess returns over the past 20 trading days $ \text{Excess Return Volatility} = \sqrt{\frac{\sum (\text{Excess Return} - \text{Mean Excess Return})^2}{n}} $ [13] --- Factor Backtesting Results IC Performance - **bp**: Weekly IC = 9.73%, Monthly IC = 2.21%, Yearly IC = 1.64%, Historical IC = 2.27% [9] - **bp Three-Year Percentile**: Weekly IC = 14.75%, Monthly IC = 3.36%, Yearly IC = 2.85%, Historical IC = 1.69% [9] - **Quarterly EP**: Weekly IC = -4.31%, Monthly IC = 0.38%, Yearly IC = -0.58%, Historical IC = 1.13% [9] - **Quarterly EP One-Year Percentile**: Weekly IC = 7.25%, Monthly IC = 3.57%, Yearly IC = 0.94%, Historical IC = 1.73% [9] - **Quarterly SP**: Weekly IC = -0.92%, Monthly IC = 0.38%, Yearly IC = 0.23%, Historical IC = 0.71% [9] - **Quarterly SP One-Year Percentile**: Weekly IC = 11.79%, Monthly IC = 4.40%, Yearly IC = 3.08%, Historical IC = 1.86% [9] - **Fama-French Three-Factor One-Month Residual Volatility**: Weekly IC = 14.50%, Monthly IC = 5.11%, Yearly IC = 3.29%, Historical IC = 2.54% [9] - **One-Month Excess Return Volatility**: Weekly IC = 14.87%, Monthly IC = 5.14%, Yearly IC = 3.26%, Historical IC = 2.22% [9] Long-Only Portfolio Excess Returns - **bp**: Weekly Excess Return = 0.52%, Monthly Excess Return = -0.36%, Yearly Excess Return = 1.57%, Historical Cumulative Excess Return = 30.39% [11] - **bp Three-Year Percentile**: Weekly Excess Return = 0.75%, Monthly Excess Return = -0.59%, Yearly Excess Return = 3.19%, Historical Cumulative Excess Return = -1.63% [11] - **Quarterly EP**: Weekly Excess Return = 0.13%, Monthly Excess Return = 1.56%, Yearly Excess Return = 1.05%, Historical Cumulative Excess Return = 30.66% [11] - **Quarterly EP One-Year Percentile**: Weekly Excess Return = 0.81%, Monthly Excess Return = 0.32%, Yearly Excess Return = 3.53%, Historical Cumulative Excess Return = 33.78% [11] - **Quarterly SP**: Weekly Excess Return = -0.30%, Monthly Excess Return = 0.33%, Yearly Excess Return = 0.34%, Historical Cumulative Excess Return = -2.98% [11] - **Quarterly SP One-Year Percentile**: Weekly Excess Return = 0.56%, Monthly Excess Return = 1.09%, Yearly Excess Return = 9.91%, Historical Cumulative Excess Return = 1.99% [11] - **Fama-French Three-Factor One-Month Residual Volatility**: Weekly Excess Return = 1.33%, Monthly Excess Return = 1.68%, Yearly Excess Return = 8.97%, Historical Cumulative Excess Return = 19.84% [11] - **One-Month Excess Return Volatility**: Weekly Excess Return = 1.34%, Monthly Excess Return = 1.55%, Yearly Excess Return = 10.29%, Historical Cumulative Excess Return = 11.42% [11]

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]