Research On Multi-factor Quantitative Investment Strategy Based On Prospect Theory

There are still many irrational and anomalous behaviors in the continuous development of China's stock market,and they cannot be reasonably explained by traditional financial theory.Behavioral finance explains and predicts the future development of the stock trading market by studying the individual buying and selling behaviors involved in investment and the psychological motivation behind such behaviors.The research of multi-factor quantitative strategies has always been an important content of quantitative financial research.This article attempts to organically combine behavioral finance theory with multi-factor quantitative strategies to form a more effective investment strategy in the Chinese market.Prospect theory is the cornerstone of behavioral finance theory.By characterizing the investor's decision-making process,it predicts the behavioral tendency of investors.This article will construct a Prominent Capital Gain(CGO)factor based on the prospect theory,and then add classic stock selection factors to form a new multi-factor quantitative stock selection investment strategy,and use the relevant data of CSI 300 constituent stocks in the A-share market to return Test analysis comparison.There are three main research links in this article.First,it is the introduction and construction of the factor,using the S-type value curve of the prospect theory,to construct the prospect theory factor-the outstanding capital gains(CGO),and make reasonable improvements to the CGO factor according to the state of the Chinese stock market.Secondly,in the process of model construction and algorithm design,this article introduces the layered backtesting method and regression analysis method to verify the effectiveness of the CGO factor.It also introduces two stock selection methods for single stock selection and multi-factor comprehensive scoring to build stock selection.Strategy,and choose Rink-IC and IC?IR as weight distribution algorithms.Finally,in the backtesting analysis,this article uses the representative CSI 300 index stocks in the A-share market as the stock pool.Through the hierarchical backtesting and regression analysis,it is verified that the CGO factor has a good stock selection effect.In the backtesting of multi-factor quantitative stock selection strategies,two types of stockselection and weighting methods are cross-combined to form four multi-factor quantitative stock selection strategy models,and the results of backtesting and comparison are analyzed and obtained.Based on CGO and classic stock selection Multi-factor strategy model constructed by a combination of single-factor stock selection methods and factor Rank-IC moving average weighted factors,performed well on the constituent stocks of the Shanghai and Shenzhen 300 Index,and the overall performance of the strategy was stable.