Stock Investment Strategy And Empirical Research Based On Capita Gain Overhang

China's capital market continues to develop and improve,but at the same time there are still many problems.Various financial anomalies in the stock market are prosperous.The long-standing irrational behavior in the market will weaken the practical significance of traditional financial theory in China's stock market.Behavioral finance explains various financial anomalies in the stock market from the micro-individual behavior and the psychological causes of such behavior.Starting from behavioral finance,this paper uses the S-type value curve of prospect theory to reveal that investors use the reference point to judge the income and loss.This paper redefines the reference price corresponding to the reference point to accurately describe the investor's judgment about the income and loss.Based on this,we constructing the behavioral finance factor,the Capital Gains Overhang(CGO).The main work of this paper includes the following aspects:(1)a detailed introduction to the theoretical model of reference price and the meaning of the Capital Gains Overhang CGO;And the Chinese stock market is tested for the Disposition Effect and select a suitable reference price;(2)Validation of the capital gains overhang from the three dimensions: correlation test,monotonicity test,and Fama-MacBeth regression;(3)use the CGO factor for single factor stock selection strategy;Introduce multiple factors for two-factor stock selection strategy.In addition,considering the risk preference of investors,this paper also designs the stock selection strategy based on the degree of risk for low CGO level stocks.The empirical results show that China's stock market has a significant Disposition Effect,and the most suitable reference price is the 120-day turnover rate weighted average price.Regardless of the correlation test,monotonicity test,and Fama-MacBeth regression,the CGO factor is considered to be an effective factor.In general,the three stock picking strategies constructed in this paper have good performance in the short,medium term.From the short-term and medium-term perspectives,the two-factor stock picking strategy and the risk preference stock picking strategy have the best performance compared with the single factor stock picking strategy;In the long run,the single factor stock picking strategy and the two-factor stock picking strategy have better performance.From the stock quantity analysis,the three stock portfolios has the highest annualized excess return rate regardless of the time interval.When making single-factor stock selection,we should pay more attention to the value of CGO.The stock portfolio with lower CGO value has stronger performance.When considering the two-factor stock selection strategy,it should be considered whether the control factors are distributed in a favorable direction at the same time,otherwise it can be evenly distributed,thereby increasing the annualized excess return rate.The stock picking strategy after considering risk preference can bring higher excess return rate,but the growth of excess return rate can not meet the large increase of annualized volatility,which will lead to the reduction of information ratio and affect the effect of strategy.