Empirical Research On Multi-factor Stock Selection Based On ESG Factor

As China's financial system is becoming more and more perfect and financial prod-ucts are becoming more and more abundant,it is becoming more and more difficult to make an appropriate choice of financial products.In the financial market,the de-mand for rationally making a better choice continues to expand.The establishment of stock selection model is trying to quantify the factors of stock selection to rationally analyze the development law of the stock market.At the same time,the increasing development of big data information technology and the in-depth penetration of data in various industries provide technical means and data support for quantitative analysis of financial markets.The traditional multi-factor stock selection process is mainly composed of two steps:determining effective factors and constructing stock selection model.This paper also optimizes the stock selection strategy from these two aspects.One of the advantages of multi-factor stock selection model is its simple form,but in the process of concrete operation,some details will affect the effect of stock selection.In order not to over-complicate the process of stock selection,but to ensure the effect of stock selection as much as possible,this paper has carried on a more perfect processing to some details when cleaning the data,determining the historical window factor value and assigning factor weight.The first step to construct the model of stock selection is to determine the effective factor.The selection of effective factor limits the effect of multi-factor stock selection.Therefore,in the construction of the factor pool,this paper tries its best to comprehensively select a variety of factors from the existing factors and select the factors that are highly correlated with stock returns from the factor pool.For the complex financial market,the existing factors can not fully reflect the fac-tors that affect the financial market returns.Traditional factors are mainly based on the financial information of listed companies,while ESG investment mainly focuses on the non-financial information of enterprises,and makes supplementary analysis on the traditional fundamental and technical analysis dead corners.By testing the validity of ESG factor in stock selection,this paper proves that ESG factor can be used as an effective supplement to the traditional factor pool from an empirical perspective.In order to make better use of ESG data in the process of stock selection,this paper com-pares the ESG information provided by different institutions in the market from the perspective of the effectiveness of stock selection,and finds that compared with the ESG rating data of Huashen Securities,the ESG rating data of Shangdao Ronggreen is better.Different agencies give different ESG ratings on the same enterprise.This is because different rating agencies have different evaluation and audit mechanisms in the field of non-financial information,and the information based on which is different.Given that different agencies have different evaluations of the same company,it may be a sign of a big change in stock returns.We also wanted to extract as much infor-mation as we could from the small amount of ESG data we had.Therefore,this paper constructs the difference factor to explore the impact of the difference of ESG rating information of different institutions on stock returns.The analysis results remind us that when using ESG information for stock selection,we need to carefully analyze the reasons behind the differences in ESG information of different institutions,so as to avoid missing out on high returns or suffering huge losses.