An Economic Cycle-based Multi-factor Alpha Model— with Application in the Taiwan Market

• Main Authors: Miao-lien TSENG, 曾妙蓮
• Other Authors: Yih JENG
• Format: Others
• Language: en_US
• Published: 2012
• Online Access: http://ndltd.ncl.edu.tw/handle/61012186653226652284

碩士 === 國立中山大學 === 財務管理學系研究所 === 100 === This study aims to find an effective linear combination of factors in different economic cycle periods and then construct two factor timing multi-factor alpha models, one each for the expansion and contraction periods. Then, we wish to examine a further two effects, namely calendar effect and cross effect. The calendar periods are divided into the first half year and the second half year. The cross effect is the combination of the economic cycle and the calendar effect. In addition, this study puts different loadings in core and satellite descriptors, which means we wish to examine which descriptors are more important when we rebalance our portfolio weekly. The empirical results show that the Value factor is effective in expansion and the first half year, and the Size and Earnings Quality factors are effective in contraction and the second half year. Moreover, the Price Momentum and Trading Activity factors are effective most of the time. We find that the optimal weight for core descriptors is 0.3 and for satellite descriptors is 0.7. Finally, the information ratios of our models are superior to the Standard alpha model by Hsu et al. (2011) and the Market Trend-based alpha model by Wang (2011). Taking the AMCross as an example, when the tracking error is below 3%, the IR is 1.40, the active return is 3.09%, the tracking error is 2.20%, the turnover rate is 207% and the transaction costs are 1.2%.