Publication Type

PhD Dissertation

Version

publishedVersion

Publication Date

3-2025

Abstract

Based on the data of 4280 firms listed on China's A-share market from 2010 to 2023, this paper constructs 20 market factors and 4 financial factors to systematically study multi factor stock selection strategies in China's stock market. Furthermore, this article analyzes the impact of China's capital market mechanisms on stock selection strategies, which include margin trading and securities lending mechanism, Mainland-Hong Kong Stock Connect mechanism, analyst coverage mechanism, and information disclosure mechanism. The main conclusions are as follows:

Firstly, this paper reveals that 12 market factors, including size, price, and liquidity are all effective pricing factors, and the strategy constructed based on them can achieve significantly positive returns. The best strategy is low liquidity, with an average monthly return of 1.86% (annualized 22.32%). In addition, strategies constructed based on financial factors such as profitability, growth, safety, and quality are all very effective. High quality strategies can achieve an average monthly return of 1.46% (annualized 17.52%). Secondly, this article indicates that the dual-factor strategy has a significant improvement compared to the single market factor or single financial factor strategy. Among all the "market + market" dual-factor strategies, the small cap-low price strategy performs the best, with a monthly return of 2.23% (annualized 26.76%), which is significantly higher than the small cap strategy and low price strategy. Moreover, there are 9 dual-factor strategies with monthly returns exceeding 2%, such as small cap-low momentum (2.17%), small cap-low turnover (2.09%), and small cap-low skewness (2.06%). The dual-factor strategies of "market + finance" has also shown significant improvement. Among them, the monthly average return of the small cap- high quality strategy increased to 2.04% (annualized 24.48%). Thirdly, this article constructs 9 factors from the perspectives of returns, risks, and unit risk compensation to evaluate all strategies. During the sample period, there are a total of 23 dual-factor strategies with a cumulative increase of more than 10 times. The best strategy is the small cap-low liquidity strategy, with a cumulative return of 2027.81% and an annualized compound return of 24.4%. The Sharpe ratio, Treynor ration, and information ratio are 0.228, 0.175, and 0.295, respectively. Overall, this study indicates that the dual-factor stock selection strategy significantly improves the cumulative return and unit risk return of the portfolio, significantly optimizing the effectiveness of the single factor strategy. Finally, this article further investigates the impact of stock market mechanisms on stock selection strategies. The results indicate that, the margin trading and securities lending mechanism significantly reduces the effectiveness of profit, growth, safety, and quality stock selection strategies. The Mainland-Hong Kong Stock Connect program significantly weakens the effectiveness of all factor stock selection strategies. Analyst attention and research report coverage have a significant strengthening effect on the effectiveness of factor stock selection strategies. Small cap, low liquidity, profit, growth, safety, and quality strategies have significantly higher returns among these stocks. Information transparency has a promoting effect on financial factor strategies. High information transparency results in significantly higher returns for profit, security, and quality strategies.

Keywords

Single-factor strategy, dual-factor strategy, strategy evaluation, margin trading, Stock Connect mechanisms

Degree Awarded

Doctor of Bus Admin (CKGSB)

Discipline

Asian Studies | Finance | Finance and Financial Management

Supervisor(s)

FU, Fangjian

First Page

1

Last Page

167

Publisher

Singapore Management University

City or Country

Singapore

Copyright Owner and License

Author

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