Quantitative Investment Strategy Based On Fama-French Multi-factor Model

In the context of China's comprehensive opening up of foreign Banks,securities,funds and other financial companies in China in the domestic business restrictions.Domestic financial market and financial institutions to accelerate the pace of reform,accelerate the management system and investment strategy with the international trend is more and more obvious.Therefore,driven by the market reform and the wave of technology and finance,the research and demand for quantitative investment in the domestic capital market will show a rapid growth.From the asset pricing model to the Fam A-French three-factor model.Scholars and market participants have long analyzed the mysteries of financial market volatility through mathematical theories and financial models.Through the research of the frontier quantitative theoretical model,it is of great significance to promote the application of quantitative strategy in Shanghai and Shenzhen markets.Fama-French extended and improved the three-factor model by adding profit level factor and investment level factor to build a new five-factor model.Chinese scholars then demonstrate the performance of the model in the a-share market,but the existing research results are obviously controversial.This paper firstly follows the research ideas of Fama and French in 2015.A five-factor model was constructed by taking the constituent stocks of csi 300 index as the representative of Chinese stock market.The adaptability of the model to China's stock market is illustrated by empirical test and quantitative strategy.The empirical results show that the five-factor model is stronger than the three-factor model in explaining the market stock return rate.Second,in the quantitative stock selection strategy.According to the three-factor model stock selection strategy,the return on investment exceeded the five-factor model quantization strategy by 27.3% during the twelve years of backtesting.However,the return rate of the five-factor time-timing quantitative investment strategy combined with the three-factor quantitative investment strategy was 36.7%higher than that of the three-factor quantitative investment strategy.This paper finds that the 1-5 factor model is better than the 3-factor model in explaining the return rate of Chinese stocks,and the HML factor becomes the redundancy factor.2.The multi-factor model will have different performances in different periods.The traditional fama-french three-factor or five-factor model could not well explain the return on stock portfolios between 2016 and 2019.3.In the long run,the five-factormodel is better than the three-factor model in explaining the Chinese stock market.The five-factor model can construct a quantitative investment strategy that is better than the three-factor model.Combined with the current capital market frontier Resistance Support Relative Strength model.This paper analyzes the market performance of csi 300 index under three conditions of slope index,standard index and modified standard index,and constructs the optimal RSRS timing model.Through the combination of fama-french stock selection model and RSRS timing model,the quantization model was constructed,and the strategy was written and the final result was measured by the quantization back-test platform of the width-based quantization platform.