Empirical Study On Multi-factor Stock Selection Model Based On Emotional Coefficient

The rapid development of China's economy has driven the progress of people's investment philosophy.The participation of ordinary people in the capital market has increased day by day,and the professional technical requirements for investment have become higher and higher.In this context,quantitative investment,as a way to quantitatively characterize and analyze various types of information in the investment market,to more rationally price and trade securities,provides investors with a way to the most concise,clear and verifiable investment rules.In the meantime,though the domestic quantitative investment development is fast,compared with foreign countries,it is still in the initial stage.Most scholars' research on quantitative investment focuses on the applicability of quantitative investment in the domestic market.There are few studies that are combined with behavioral finance.This paper considers the characteristics of China's stock market and market participants,and believes that investors' psychology and behavior are also factors that can not be ignored in the securities market.On the basis of behavioral finance theory,this article provides a multi-factor stock selection model under the sentiment index in China.The empirical analysis of this paper mainly has two sections.The first section is the construction of investor sentiment index.This paper comprehensively considers the closed-end fund discount rate,IPO quantity,transaction turnover rate,consumer confidence index and the number of newly opened investors and then use Principal Component Analysis(PCA)to construct a comprehensive investor sentiment index.The empirical test examines the relationship between the size of the sentiment index and the monthly rate of return,constructs an emotional timing strategy based on the empirical conclusions,and adopts an avoidance investment strategy for screening high-risk months.In the construction of multi-factor stock selection model,21 candidate factors were selected and tested,and 7 effective factors were obtained.The traditional multi-factor stock selection model was constructed.Then the multi-factor model is combined with the investor's emotional timing to construct a multi-factor stock selection model under the sentiment index.The model performances of the two are compared and analyzed,which shows that the latter is better than the former,and the emotional timing plays the role of optimizing the traditional multi-factor stock selection model.