Multi-factor model construction:Taiwan Weighted Stock Index enhanced index fund application

• Main Authors: Tzu-Ying Yu, 游姿穎
• Other Authors: Yih Jeng
• Format: Others
• Language: en_US
• Published: 2008
• Online Access: http://ndltd.ncl.edu.tw/handle/9bt6f7

碩士 === 國立中山大學 === 財務管理學系研究所 === 96 === We construct the multi-factor model using fundamental cross-sectional approach in the thesis. We adopt the principal of BARRA’E3 for constructing our multi-factor model. In our study period, we finally obtain 34 significant explanatory factors including 7 risk indices and 27 industry factors. In particular, the industry factors are an important risk source of the stock returns. The explanatory power of the multi-factor model is 43.18% on average and it ranges from 12.89% to 82.35%. The study results can be considered satisfactory. Moreover, based on the multi-factor model, we construct the Taiwan Weighted Stock Index enhanced index fund by the tracking error minimization method in our study. Enhanced Index Fund was built to make use of both passive management and active management to construct a portfolio which has the similar characteristics but higher returns compared to benchmark index. Hence, we want to track the Taiwan Weighted Stock Index while producing at least 2% outperformance over the Taiwan Weighted Stock Index. Our empirical period is from January 2000 to December 2005 and the simulated period is from January 2006 to December 2007. The performance of our constructed Taiwan Weighted Stock Index enhanced index fund in the simulated period is better than the benchmark and the tracking error is 1.36%. We are satisfied with the study results.