The Effectiveness And Market Impact Of Alpha Arbitrage Strategy

In 2008,the US Sub-prime Crisis induced the world financial crisis has spread to many other economies.The main financial markets in the world including China’s fell sharply in correlation which aroused the focus on systematic risk of financial market world widely.Instead of Beta strategy,Alpha investment strategy becomes popular within institutional investors.Since 2010,the HS300 stock index futures contract were launched which provide a practical tool to hedge the stock market’s systematic risk for Alpha Arbitrage strategy investors.The essence of Alpha arbitrage strategy is to find the mispricing of the market and again abnormal returns.However,if there are huge of institutional investors adopt it to hedge the systematic risk;could the strategy still effective and profitable?Empirically analyze the Shanghai Stock Market from 2005 to 2007,we found that the momentum effect is significance and using Alpha momentum strategy is able to get abnormal returns.In addition,the performance of momentum effect is different under different market environment.To be specific,compared with the period of December 2007(bull market)to momentum effect is more significance than that of the period of January 2005 to October 2007(bear market).Moreover,from an agent-based modeling perspective,we adopt an artificial spot-future cross-market simulation platform to analyze the effectiveness and profitability of momentum Alpha strategy by changing the settings of the amount and proportion of momentum Alpha strategy investors.The artificial cross-market platform coincides with the main characteristics of the Chinese stock market and the CSI 300 futures market.From the experimental result,we found that when the proportion of momentum Alpha strategy investors is 5%,this strategy could gain significance abnormal returns,but these abnormal returns will drop in the later period and then leveling out.When increasing the proportion to 10% and 15%,investors get decreasing abnormal returns and in the leveling out period,they almost cannot get abnormal return.We also analyze the market quality by comparing the market within and without momentum Alpha strategy investors.The result shows that the appropriate proportion of momentum Alpha strategy investors is beneficial for market quality.