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]