This study constructs a quantitative stock selection model across multiple sectors with the application of the Bayesian method. It employees factors from the Taiwan stock market which could explain stock returns. Under this structure, each sector that has different significant factors is allowed to be imported into sub models. The factors are calculated into alpha scores and used to do stock selection. Therefore, the demonstration of both intra and inter-sector alpha scores into sector-specific integration alpha scores is an important concept in this study. Furthermore, an enhanced index fund is built based on the model and related to the benchmark to illustrate the power of this model. Once the contents of a portfolio are decided, this model could provide stock selection criterion based on the predictive power of stock return. Finally, the results demonstrate that this model is practical and flexible for local stock portfolio analysis.

This study constructs a cross-market risk model based upon local multi-factor risk models of Taiwan, China and Singapore equity markets. This model allows each local market to adopt different local factors rather than force all local markets to use one parsimonious set of factors. We employ the world, country, industry, and global risk factors to build a structural model which could explain the relationship between local factors across market by further decomposing local factor returns. Therefore, this model could provide both in-depth and broad coverage analysis of international equity portfolios. Furthermore, we build a simple portfolio and its corresponding benchmark to illustrate the usage of our model. Once the contents of a portfolio are decided, this model could provide not only the risk estimation and decomposition in advance but also the performance attribution compared with the benchmark after the portfolio is realized. The analytical viewpoint could also easily change with different numeraire perspectives. The result demonstrates that this model is practical and flexible for international equity portfolio analysis.