Research On Multi-factor Quantitative Stock Selection Strategy Considering ESG Grade

In recent years,with the progress and development of computer technology and related theories and models,the advantages of quantitative investment in the investment market began to gradually emerge,and domestic investors are increasingly enthusiastic about quantitative investment.However,in the current situation of rapid information transmission,the effectiveness of traditional factors gradually decreases with the increase of users.All kinds of securities market returns have been unable to be completely explained by traditional factors,in this case,need to explore more effective factors.On the other hand,under the development background of increasingly prominent social contradictions and increasingly severe environmental problems,ESG investment concept has attracted widespread attention from the investment community.Different from traditional factors that emphasize corporate financial performance,ESG factors measure non-financial performance of enterprises in environmental,social,governance and other aspects,which is in line with sustainable development goals.Therefore,how to incorporate ESG factors into quantitative investment strategies has become a topic of focus in both theoretical and practical circles.This paper studies how to incorporate ESG factors into traditional multi-factor stock selection models to achieve better market performance.The research contents of this paper include: First,based on the 800 stock pool of China Securities,the effective traditional factors are screened,the factor weight is determined by IC＿IR value,and the traditional stock selection model is constructed by scoring method.Secondly,the ESG comprehensive rating and the three sub-ratings of E,S and G were used as first-level dimension factors to test the effectiveness.The effective factors were added into the traditional stock selection model to measure and compare the market performance of different models in the stock pool of China Securities 800.In the robustness test,the model is tested in the stock pools of CSI 300 and CSI 500.Finally,the effective secondorder dimension factor and ESG volatility factor under E,S and G were further screened,and factor synthesis was carried out by orthogonal and IR weighted methods.After the obtained ESG synthesis factor was incorporated into the stock selection model,its performance in different stock pools was tested.The conclusions of this paper are as follows:(1)Based on the stock pool of China Securities 800,the ESG comprehensive rating factor and the two sub-rating factors of E and S can pass the validity test,but they have different impacts on investment returns and risks.Among them,ESG comprehensive rating factor can reduce the risk of traditional stock selection model;E and S two sub-rating factors can not only reduce the risk of traditional stock selection model,but also improve the return.(2)Based on the stock pool of China Securities 800,the ESG composite factor constructed with effective ESG second-level dimension factor and environmental score volatility factor performs better than the single ESG rating factor in Conclusion(1)in improving the traditional stock selection model.(3)In the robustness test of ESG factor,based on the CSI 300 stock pool,S factor and ESG composite factor have a strong ability to improve returns,and the latter has a strong ability to control risks;Based on the stock pool of China Securities 500,the ESG synthetic factor,ESG comprehensive rating factor and the two sub-factors E and S all have good risk control ability,but no obvious ability to improve returns.