Quantitative Models and Construction Methods 1. Model Name: Maximized Factor Exposure Portfolio (MFE) - **Model Construction Idea**: The MFE portfolio is designed to maximize the exposure of a single factor while controlling for various constraints such as industry exposure, style exposure, stock weight deviation, and turnover rate[64][65] - **Model Construction Process**: - The optimization model is formulated as follows: $$ \begin{array}{ll} \max & f^{T}w \\ \text{s.t.} & s_{l} \leq X(w-w_{b}) \leq s_{h} \\ & h_{l} \leq H(w-w_{b}) \leq h_{h} \\ & w_{l} \leq w-w_{b} \leq w_{h} \\ & b_{l} \leq B_{b}w \leq b_{h} \\ & 0 \leq w \leq l \\ & 1^{T}w = 1 \\ & \Sigma|w-w_{0}| \leq to_{h} \end{array} $$ - **Explanation of Parameters**: - \( f^{T}w \): Weighted exposure of the portfolio to the factor - \( w \): Portfolio weight vector - \( w_{b} \): Benchmark weight vector - \( X, H, B_{b} \): Matrices representing factor, industry, and benchmark exposures - \( s_{l}, s_{h}, h_{l}, h_{h}, w_{l}, w_{h}, b_{l}, b_{h}, to_{h} \): Constraints on factor exposure, industry exposure, stock weight deviation, and turnover rate - Constraints include: - Limiting style and industry deviations relative to the benchmark - Controlling stock weight deviations and turnover rates - Ensuring full investment (weights sum to 1) and no short selling[64][65][67] - The portfolio is rebalanced monthly, and historical returns are calculated after deducting transaction costs to evaluate factor effectiveness[68] - **Model Evaluation**: The MFE model effectively isolates the impact of individual factors while adhering to practical constraints, making it a robust tool for factor evaluation[64][65] --- Quantitative Factors and Construction Methods 1. Factor Name: Trend - **Factor Construction Idea**: Captures the momentum of stock price trends over different time horizons[16] - **Factor Construction Process**: - Two variations: - **Trend_120**: \( \text{EWMA}(\text{halflife}=20) / \text{EWMA}(\text{halflife}=120) \) - **Trend_240**: \( \text{EWMA}(\text{halflife}=20) / \text{EWMA}(\text{halflife}=240) \) - \( \text{EWMA} \): Exponentially Weighted Moving Average[16] - **Factor Evaluation**: Demonstrates strong performance in capturing price continuation patterns, particularly in volatile markets[11][13] 2. Factor Name: Volatility - **Factor Construction Idea**: Measures the variability of stock returns over a specified period[16] - **Factor Construction Process**: - Variants include: - **Stdvol**: Standard deviation of daily returns over the past 243 days - **Ivff**: Fama-French 3-factor idiosyncratic volatility over the past 243 days - **Range**: \( \text{High Price}/\text{Low Price} - 1 \) over the past 243 days - **MaxRet_6**: Average of the six highest daily returns over the past 243 days - **MinRet_6**: Average of the six lowest daily returns over the past 243 days[16] - **Factor Evaluation**: Effective in identifying high-risk stocks, though performance may vary across market conditions[11][13] 3. Factor Name: BP (Book-to-Price Ratio) - **Factor Construction Idea**: Represents the valuation of a stock relative to its book value[20] - **Factor Construction Process**: - Formula: \( \text{BP} = \text{Net Assets} / \text{Market Capitalization} \)[20] - **Factor Evaluation**: Consistently performs well in value-oriented strategies, particularly in markets favoring undervalued stocks[42][43] 4. Factor Name: Three-Month Institutional Coverage - **Factor Construction Idea**: Measures the level of analyst coverage over the past three months[20] - **Factor Construction Process**: - Formula: Count of research reports published by institutions over the past three months[20] - **Factor Evaluation**: Strongly correlated with market sentiment and stock visibility, often leading to positive price momentum[8][46] --- Factor Backtesting Results 1. Trend Factor - **Recent Weekly Return**: 2.39% - **Recent Monthly Return**: 5.57% - **Year-to-Date Return**: -0.70% - **Annualized Return (1 Year)**: 24.36% - **Annualized Return (10 Years)**: 14.25%[11][13] 2. Volatility Factor - **Recent Weekly Return**: -1.75% - **Recent Monthly Return**: -3.95% - **Year-to-Date Return**: 4.10% - **Annualized Return (1 Year)**: 24.26% - **Annualized Return (10 Years)**: -13.16%[11][13] 3. BP Factor - **Recent Weekly Return**: 0.68% - **Recent Monthly Return**: 0.06% - **Year-to-Date Return**: -4.33% - **Annualized Return (1 Year)**: -1.51% - **Annualized Return (10 Years)**: -0.61%[42][43] 4. Three-Month Institutional Coverage Factor - **Recent Weekly Return**: 1.70% - **Recent Monthly Return**: 1.29% - **Year-to-Date Return**: 4.96% - **Annualized Return (1 Year)**: 1.66% - **Annualized Return (10 Years)**: 4.39%[46][48]

Quantitative Factors and Models Summary Quantitative Factors and Construction Process - **Factor Name**: Value **Construction Idea**: Captures the market's preference for value investing strategies **Construction Process**: Includes metrics like Book-to-Price (BP) and Earnings Yield (EP) **Evaluation**: Demonstrated significant positive returns in the recent week, indicating increased market recognition of value strategies [10][12][13] - **Factor Name**: SOE (State-Owned Enterprise) **Construction Idea**: Measures the proportion of state ownership in a company **Construction Process**: Calculated as the percentage of shares held by state-owned entities **Evaluation**: Showed slight improvement in returns, reflecting increased market attention to state-owned enterprises [10][13] - **Factor Name**: Growth **Construction Idea**: Tracks growth potential through metrics like ROE changes and sales growth **Construction Process**: Includes metrics such as Delta ROE (average ROE change over 3 years) and Sales Growth (3-year compound growth rate of revenue) **Evaluation**: Stable performance, though slightly weaker compared to the previous week [11][13] - **Factor Name**: Volatility **Construction Idea**: Measures the market's preference for high or low volatility stocks **Construction Process**: Includes metrics like standard deviation of returns over 243 days and maximum/minimum returns over the same period **Evaluation**: Negative returns, indicating reduced demand for high-volatility assets [11][13] - **Factor Name**: Trend **Construction Idea**: Captures momentum through exponential weighted moving averages (EWMA) **Construction Process**: Metrics include Trend_120 (EWMA with half-life of 20 days divided by EWMA with half-life of 120 days) **Evaluation**: Significant decline in returns, reflecting reduced market preference for trend-following strategies [11][13] - **Factor Name**: Certainty **Construction Idea**: Measures market confidence in predictable investments **Construction Process**: Includes metrics like institutional holding percentage and analyst coverage **Evaluation**: Weak performance, indicating low market confidence in certainty-based strategies [11][13] - **Factor Name**: Liquidity **Construction Idea**: Tracks market preference for liquid assets **Construction Process**: Includes metrics like average turnover rate over 243 days and liquidity beta **Evaluation**: Declined further, showing reduced demand for high-liquidity stocks [11][13] - **Factor Name**: Beta **Construction Idea**: Measures sensitivity to market movements **Construction Process**: Bayesian compressed market beta **Evaluation**: Significant negative returns, indicating reduced preference for high-beta stocks [11][13] Factor Backtesting Results - **Value Factor**: Weekly return of 0.38%, monthly return of -4.25%, annualized return of -24.01% over the past year [12] - **SOE Factor**: Weekly return of 0.16%, monthly return of 0.71%, annualized return of 19.07% over the past year [12] - **Growth Factor**: Weekly return of -0.19%, monthly return of 2.21%, annualized return of 15.05% over the past year [12] - **Volatility Factor**: Weekly return of -0.28%, monthly return of -1.38%, annualized return of 24.81% over the past year [12] - **Trend Factor**: Weekly return of -0.41%, monthly return of 3.86%, annualized return of 16.35% over the past year [12] - **Certainty Factor**: Weekly return of -0.66%, monthly return of -3.15%, annualized return of -20.57% over the past year [12] - **Liquidity Factor**: Weekly return of -1.06%, monthly return of -2.38%, annualized return of 30.40% over the past year [12] - **Beta Factor**: Weekly return of -1.30%, monthly return of -0.80%, annualized return of 29.44% over the past year [12] MFE Portfolio Construction - **Model Name**: Maximized Factor Exposure (MFE) Portfolio **Construction Idea**: Maximizes single-factor exposure while controlling for constraints like industry and style deviations **Construction Process**: - Objective function: Maximize factor exposure - Constraints: - Style and industry exposure limits - Stock weight deviation limits - Turnover rate 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} $ - $f$: Factor values - $w$: Stock weight vector - $X$: Style exposure matrix - $H$: Industry exposure matrix - $B_b$: Benchmark component weights - $to_h$: Turnover rate upper limit **Evaluation**: Effective in isolating factor performance under controlled conditions [59][60][63] MFE Portfolio Backtesting Results - **HS300 Index**: Weekly excess return range: -0.41% to 0.72%, median: 0.21% [52] - **CSI500 Index**: Weekly excess return range: -0.55% to 1.25%, median: 0.28% [56] - **CSI1000 Index**: Weekly excess return range: -0.64% to 1.05%, median: 0.22% [58]

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]