The Research Of Stock Selection Strategy Based On Fama-French Three Factor Model To The CSI 500 Index As An Example

At the first part of this paper,Fama-French three-factor model has been analyzed,include its principle and the development of history.Adopt similar statistical methods as Farm-French to do the effectiveness research of the history data of Shanghai stock market during 2000.07 t o 2015.06.Single factor,double factor and three factor regression model have been tested.We find out that,market factor has the biggest affect for the cross-section of stock return,next is size factor(ME),the effect of value factor(B/M)is relatively small.At the second part of this paper,focus on the application of three-factor model in CSI 500 Index stock.First,discuss the effectiveness of three factor model in csi 500 index stock.In July 2011 to June 2015,according to the historical data of size factor on the csi 500 index returns had the greatest influence,the impact of market factors and value factors is unconspicuous.In addition,the stock pool to construct three-factors has big impact to the result of regression.The 2X3 stock portfolio by CSI 500 index stocks cannot well explain the returns.Secondly,study the stock selection logic and strategy based on Fama-French three factor model in CSI 500 Index stock.We find out that,size factor is the most important factor,the role of value factor is not clear.But can design a control coefficient with size factor and value factor to adjust the stock selection model.Numerical experiments help us to get the optimal number of shareholding and the control coefficient of value factors.Finally,study the effect of P/E ratio factor of portfolio returns.We find out that,to CSI 500 Index stock,the P/E ratio factor rather than value factor has better ability to explain the return,small size stock with high P/E ratio may have higher returns.