An Empirical Study On Quantification Portfolio Strategy Based On The Analyse Of Mean Reversion In Alpha

With the continuous development of China's capital market and the introduction of various financial derivatives, investment methods and channel are also changing. On one hand, the proportion of quantitative trading is increasing considering the investment methods. On the other hand, individual investors become not suited to market and the influence of institutional investors increases in view of investment channels. In addition, considering the volatility of domestic stock market, it is necessary to study the new investment strategy. For example, the Alpha arbitrage is an effective strategy. It is an essential principle that Investment strategies must combine theory with practice.This paper starts with mean reversion theory, studies the characteristics of Alpha mean reversion, and explores its application in Alpha arbitrage strategy.Foreign literature on the study of mean reversion basically supports that mean reversion phenomenon exists in stock returns, but mean reversion is asymmetric. In addition, mean reversion does not exist in all period. The velocity of mean reversion is influenced by the size of company and other factors. Domestic literature is less in this field. The conclusion about mean reversion is also influenced by various factors. However, generally speaking, the previous literatures focus on the study of the mean reversion of stock returns and beta. This article will use the thought and method of the theory study the characteristic of mean reversion in the excess rate of return according to the theory of mean reversion. In addtion, the pervious studies focus on long-term mean reversion which thinks the price will be close to its value in the long term. But this paper pays attention to short-term mean reversion. Because that the construction of hedge funds are generally short-term in practice. The hedge fund manager always adjusts investment portfolio monthly and weekly. Besides, alpha is very important in alpha arbitradge strategy. Therefore, it is necessary to master the change of alpha every day.On the basis of mean reversion theory, this paper explores the application of mean reversion in alpha arbitrage strategy. We study the alpha with the help of the single-factor model when the formation period is 12 months. Then the paper considers two situations. One is equal weighed, another is optimized weight. The paper constructs the investment portfolio in both methods. At the same time we sell stock index futures short to avoid systemic risk and observe the change of return. Then we also found that the basis has an impact on the yield of portfolio. Eventually, considering the characteristics of mean reversion the portfolio can achieve higher returns.