Stock Picking Strategy Based on Exploration of Chip Distribution Indicators

Factor investment can be considered as a quantitative approach which can explain the return on stocks, there are hundreds of factors that are found and proved to be effective to variation of stock price over the past fifty years. Since CAPM [1], Fama-French three factors model [2] had been raised, multi-factor models are gradually developed and exploration of factors have never been disrupted. Cost of carry is believed to be a factor which could affect the psychology and investing decision of the investors. From this point of view some CYQ factors based on cost of carry could be excavated with attempt of explaining the relationship between these factors and the returns. Firstly, we established four factors (ARC, KRC, SRC, VRC) related to cost of carry based on the stock trading data of A-shares. Two approaches that had been used to verify the effectiveness of the factors includes returns of purely factors and returns of long and short related group of stocks. Finally, serval indicators like total annualized returns, volatility and Sharpe ratio etc. are calculated to evaluate the performance of factors and ARC factor was found to be the most effective for stock picking since year 2016, of which annualized return is 0.07 in HS300, 0.11 in SZ50 and 0.08 in ZZ500, Sharpe ratio is 1.07 in HS300, 1.43 in SZ50 and 1.41 in ZZ500.