- The "Rediscover Confidence 2.0" RCP factor is constructed based on behavioral finance principles, specifically addressing the common expectation bias of overconfidence. The CP factor is initially created using the time gap between rapid price increases and decreases as a proxy variable. Subsequently, the RCP factor is derived by orthogonalizing the CP factor with intraday returns, using the residuals to represent the second-generation factor[6][7] - The RCP factor is further refined by replacing ranking values with standardized factor values to preserve factor information, resulting in improved performance. This adjustment enhances the purity and effectiveness of the RCP factor[7] - The RCP factor demonstrates strong performance metrics during the backtesting period from February 2014 to October 2025. The annualized return is 17.55%, annualized volatility is 7.85%, IR is 2.24, monthly win rate is 77.30%, and maximum monthly drawdown is 7.46%[7][12] - During October 2025, the RCP factor's 10-group long portfolio achieved a return of 2.40%, the short portfolio achieved a return of 1.97%, and the long-short hedged portfolio achieved a return of 0.43%[1][10] - The RCP factor's backtesting results from January 2014 to August 2022 show an IC mean of 0.04, annualized ICIR of 3.27, annualized return of 20.69%, IR of 2.91, and a monthly win rate of 81.55%[1][6]

Quantitative Factors and Construction Methods 1. Factor Name: CP (Overconfidence Factor) - **Construction Idea**: Based on the behavioral finance concept of overconfidence, the factor uses the time difference between rapid price increases and decreases as a proxy variable to measure investor overconfidence [6] - **Construction Process**: - The factor is derived from the DHS model, which posits that investor overconfidence impacts stock prices - The time difference between rapid price increases (positive news) and rapid price decreases (negative news) is calculated to quantify overconfidence [6] - **Evaluation**: The CP factor innovatively captures overconfidence behavior but does not account for subsequent overcorrections in stock prices [6] 2. Factor Name: RCP (Reclaimed Confidence Factor) - **Construction Idea**: Extends the CP factor by considering potential overcorrections (excessive pessimism) during price pullbacks, followed by subsequent rebounds due to positive news [6] - **Construction Process**: - The CP factor is orthogonalized with intraday returns to remove noise - The residual term from this process is used to construct the RCP factor, which represents reclaimed confidence after overcorrection [6] - In the 2.0 version, standardized factor values replace ranking values to retain more factor information, improving the purity and effectiveness of the RCP factor [7] - **Evaluation**: The RCP factor demonstrates superior performance compared to traditional factor-based portfolio construction methods, particularly after the 2.0 enhancements [6][7] --- Factor Backtesting Results 1. CP Factor - No specific backtesting results provided for the CP factor in the report 2. RCP Factor (2.0 Version) - **Annualized Return**: 18.45% [7][10] - **Annualized Volatility**: 7.69% [7][10] - **Information Ratio (IR)**: 2.40 [7][10] - **Monthly Win Rate**: 78.10% [7][10] - **Maximum Drawdown**: 5.89% [7][10] 3. June 2025 Performance (RCP Factor) - **Long Portfolio Return**: 4.75% [11] - **Short Portfolio Return**: 5.64% [11] - **Long-Short Portfolio Return**: -0.89% [11]

- The "Reclaiming Confidence 2.0" RCP factor is based on the behavioral finance concept of overconfidence bias, using the time gap between rapid price increases and decreases as a proxy variable to construct the first-generation CP factor. The second-generation RCP factor is derived by orthogonalizing the CP factor with intraday returns and using the residuals to account for potential overcorrections in price adjustments[7][8] - The RCP factor was further refined by replacing sorting values with standardized factor values to retain more factor information, resulting in improved performance after purification[8] - The RCP factor's performance from February 2014 to April 2025 includes an annualized return of 18.84%, annualized volatility of 7.71%, an IR of 2.44, a monthly win rate of 79.26%, and a maximum drawdown of 5.89%[2][8][11] - During April 2025, the RCP factor's 10-group long portfolio had a return of -1.62%, the short portfolio had a return of -2.45%, and the long-short hedged portfolio achieved a return of 0.84%[2][11]