| Peer-Reviewed

Establishment and Application of Multi-Factor Pricing Model in China A-Shares Market

Received: 19 June 2018     Published: 20 June 2018
Views:       Downloads:
Abstract

Quantified investment refers to quantitative investment model and the way of issuing orders by programming, so as to obtain stable returns. In recent years quantitative investment is increasingly valued by institutional investors and hedge funds in terms of its discipline, systematicness, timeliness and decentralization. From the perspective of the effectiveness of China's securities market and the development experience of foreign securities market, the prospect of quantified investment is worth looking forward to. However, domestic quantitative investment products still have shortcomings such as small overall size, single quantitative strategy, differentiation of strategic performance. Therefore, it is of great significance to study the new quantitative investment mode and to dig out new modeling ideas to enrich the quantitative investment products, improve the market scale and promote the development of quantitative investment. Based on the method indicated by Eugene Fama and Kenneth French and using public information from China A-share market. This paper attempts to establish a multi-factor model which is able to explain the stock price in Chinese stock market. The model is based on four fundamental factors, including liquidity, profitability, growth opportunity and earning revision. In addition, four fundamental factors are further derived to ten factors. The effectiveness of the ten-factor model is tested by using historical data. The results show that this model could beat the market standard effectively and provide relatively stable excess income.

Published in International Journal of Economics, Finance and Management Sciences (Volume 6, Issue 3)
DOI 10.11648/j.ijefm.20180603.17
Page(s) 118-123
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2018. Published by Science Publishing Group

Keywords

China A-Share Market, Multi-Factor Model, Pricing Model

References
[1] John Burr Williams, “The Theory of Investment Value”. Harvard University Press 1938; 1997 reprint, Fraser Publishing.
[2] Harry Markowitz, "Portfolio Selection". The Journal of Finance. 7 (1): 77–91. doi:10.2307/2975974. JSTOR 2975974.
[3] William Sharpe, "Capital asset prices: A theory of market equilibrium under conditions of risk". Journal of Finance. vol. 19 (3): 425–442.
[4] Fama, E. F.; French, K. R. (1993). "Common risk factors in the returns on stocks and bonds". Journal of Financial Economics. 33:3. CiteSeerX 10.1.1.139.5892 . doi:10.1016/0304-405X (93) 90023-5.
[5] Wikipedia. “https://en.wikipedia.org/wiki/Liquidity_premium”.
[6] Yakov Amihud; Haim Mendelson (1986). “Asset pricing and the bid-ask spread”. Journal of Financial Economics. Volume 17, Issue 2, December 1986, Pages 223-249.
[7] Yakov Amihud. “Illiquidity and stock returns: Cross-section and time-series effects”. Journal of Financial Markets, 5, 31-56. http://dx.doi.org/10.1016/S1386-4181 (01) 00024-6.
[8] Wikipedia. “https://en.wikipedia.org/wiki/Gibrat%27s_law”.
[9] Clifford S. Asness. “The Interaction of Value and Momentum Strategies”. Financial Analysts Journal 53 (2):29-36 • March 1997.
[10] Chen, N., and Zhang, F. (1998). “Risk and Return of Value Stocks”. Journal of Business, 71, 5015.
[11] Joseph D. Piotroski. “Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers”. Journal of Accounting Research. 2000, Vol. 38, Issue Supplement, Pages 1-41.
[12] Fama, Eugene (1970). "Efficient Capital Markets: A Review of Theory and Empirical Work". Journal of Finance. 25 (2): 383–417.
[13] Jaapvan der Hart; Erica Slagter; Dick van Dijk. "Stock selection strategies in emerging markets”. Journal of Empirical Finance. Volume 10, Issues 1–2, February 2003, Pages 105-132.
[14] Charles M. C. Lee, Eric C. So. “Uncovering expected returns: Information in analyst coverage proxies”. Journal of Financial Economics. Volume 124, Issue 2, May 2017, Pages 331-348.
[15] Wind. “http://www.wind.com.cn/”.
[16] Graham, Benjamin. Dodd, David. Security Analysis: The Classic 1934 Edition. McGraw-Hill. 1996. ISBN 0-07-024496-0.
[17] Wikipedia. “https://en.wikipedia.org/wiki/Standard_score”.
[18] George O. Aragon; Wayne E. Ferson.” Portfolio Performance Evaluation”. Jan 1st 2006 Foundations and Trends in Finance volume 2 issue 2 pp 83-190 DOI: 10.1561/0500000015.
[19] Richard C. Grinold and Ronald N. Kahn. “Active Portfolio Management, Second Edition”.
[20] Evans, L. J. and Archer, H. S. “Diversification and Reduction of Dispersion: An Empirical Analysis”. The Journal of Finance (1968), 23, 761-767.
[21] Meir Statman. “How Many Stocks Make a Diversified Portfolio?” Journal of Financial and Quantitative Analysis 22 (03):353-363 • September 1987.
Cite This Article
  • APA Style

    Zhipeng Wu, Jiayi Wang, Benchang Wang. (2018). Establishment and Application of Multi-Factor Pricing Model in China A-Shares Market. International Journal of Economics, Finance and Management Sciences, 6(3), 118-123. https://doi.org/10.11648/j.ijefm.20180603.17

    Copy | Download

    ACS Style

    Zhipeng Wu; Jiayi Wang; Benchang Wang. Establishment and Application of Multi-Factor Pricing Model in China A-Shares Market. Int. J. Econ. Finance Manag. Sci. 2018, 6(3), 118-123. doi: 10.11648/j.ijefm.20180603.17

    Copy | Download

    AMA Style

    Zhipeng Wu, Jiayi Wang, Benchang Wang. Establishment and Application of Multi-Factor Pricing Model in China A-Shares Market. Int J Econ Finance Manag Sci. 2018;6(3):118-123. doi: 10.11648/j.ijefm.20180603.17

    Copy | Download

  • @article{10.11648/j.ijefm.20180603.17,
      author = {Zhipeng Wu and Jiayi Wang and Benchang Wang},
      title = {Establishment and Application of Multi-Factor Pricing Model in China A-Shares Market},
      journal = {International Journal of Economics, Finance and Management Sciences},
      volume = {6},
      number = {3},
      pages = {118-123},
      doi = {10.11648/j.ijefm.20180603.17},
      url = {https://doi.org/10.11648/j.ijefm.20180603.17},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20180603.17},
      abstract = {Quantified investment refers to quantitative investment model and the way of issuing orders by programming, so as to obtain stable returns. In recent years quantitative investment is increasingly valued by institutional investors and hedge funds in terms of its discipline, systematicness, timeliness and decentralization. From the perspective of the effectiveness of China's securities market and the development experience of foreign securities market, the prospect of quantified investment is worth looking forward to. However, domestic quantitative investment products still have shortcomings such as small overall size, single quantitative strategy, differentiation of strategic performance. Therefore, it is of great significance to study the new quantitative investment mode and to dig out new modeling ideas to enrich the quantitative investment products, improve the market scale and promote the development of quantitative investment. Based on the method indicated by Eugene Fama and Kenneth French and using public information from China A-share market. This paper attempts to establish a multi-factor model which is able to explain the stock price in Chinese stock market. The model is based on four fundamental factors, including liquidity, profitability, growth opportunity and earning revision. In addition, four fundamental factors are further derived to ten factors. The effectiveness of the ten-factor model is tested by using historical data. The results show that this model could beat the market standard effectively and provide relatively stable excess income.},
     year = {2018}
    }
    

    Copy | Download

  • TY  - JOUR
    T1  - Establishment and Application of Multi-Factor Pricing Model in China A-Shares Market
    AU  - Zhipeng Wu
    AU  - Jiayi Wang
    AU  - Benchang Wang
    Y1  - 2018/06/20
    PY  - 2018
    N1  - https://doi.org/10.11648/j.ijefm.20180603.17
    DO  - 10.11648/j.ijefm.20180603.17
    T2  - International Journal of Economics, Finance and Management Sciences
    JF  - International Journal of Economics, Finance and Management Sciences
    JO  - International Journal of Economics, Finance and Management Sciences
    SP  - 118
    EP  - 123
    PB  - Science Publishing Group
    SN  - 2326-9561
    UR  - https://doi.org/10.11648/j.ijefm.20180603.17
    AB  - Quantified investment refers to quantitative investment model and the way of issuing orders by programming, so as to obtain stable returns. In recent years quantitative investment is increasingly valued by institutional investors and hedge funds in terms of its discipline, systematicness, timeliness and decentralization. From the perspective of the effectiveness of China's securities market and the development experience of foreign securities market, the prospect of quantified investment is worth looking forward to. However, domestic quantitative investment products still have shortcomings such as small overall size, single quantitative strategy, differentiation of strategic performance. Therefore, it is of great significance to study the new quantitative investment mode and to dig out new modeling ideas to enrich the quantitative investment products, improve the market scale and promote the development of quantitative investment. Based on the method indicated by Eugene Fama and Kenneth French and using public information from China A-share market. This paper attempts to establish a multi-factor model which is able to explain the stock price in Chinese stock market. The model is based on four fundamental factors, including liquidity, profitability, growth opportunity and earning revision. In addition, four fundamental factors are further derived to ten factors. The effectiveness of the ten-factor model is tested by using historical data. The results show that this model could beat the market standard effectively and provide relatively stable excess income.
    VL  - 6
    IS  - 3
    ER  - 

    Copy | Download

Author Information
  • Department of Financial Engineering & Quantitative Investment, Tebon Fund Management Company Limited, Shanghai, China

  • Saint John's Preparatory School, Saint Cloud, USA

  • Department of Financial Engineering & Quantitative Investment, Tebon Fund Management Company Limited, Shanghai, China

  • Sections