A Multifactor model is used to explain asset return and risk and its explanatory power depends on common factors that the model uses. Researchers strive to find reasonable factors to enhance multifactor model¡¦s efficiency. However, there are still some unknown factors to be discovered. Miller (2006) presents a general concept and structure of hybrid factor model. The study follows the idea of Miller (2006) and aims to build a complete flow of constructing hybrid factor model that is based on fundamental factor model and statistical factor models. We also apply the hybrid factor model to the Taiwan stock market. We assume that a fundamental factor model is already developed and therefore this study focuses on building the second stage, statistical factor model. Principal Component Analysis is used to form statistical factor and spectral decomposition is used to prepare data for principal component analysis. Those methods are applied to stocks on the Taiwan Stock Exchange in the period of January 1, 2000 to December 31, 2009. This study presents a complete construction flow of hybrid factor models and further confirms that a hybrid factor model is able to find missing factors in a developing market such as Taiwan¡¦s stock market. The study also discovers that the missing factors might be market factor and extensive electronic industry factor.

Quantitative analysis is one branch of portfolio management. The advantages of quantitative analysis are fast and objective. It has developed significantly in recent years because of the improvements in computer technology. This thesis applies the structure of a multi-factor model (MFM) to undertake quantitative analysis. Singapore has one of the most prosperous financial markets in Southeast Asia. The Singapore Stock Exchange (SGX) and Financial Times and the London Stock Exchange (FTSE) are now in cooperation, which has added vitality to this market. It has great influence in global financial markets, and this is why we select its security market to be our target in MFM. The model refers the multi-factor processes of Jeng and Tsai (2011) . For backtesting, we adopt an enhanced strategy as testimony. We transmit information from the MFM to the enhanced strategy. Then we create the stock weightings to constitute the enhanced portfolio. This model includes 68 significant descriptors, 14 composite factors and 7 industry factors. The Singapore MFM shows 43% adjusted R-Square in the sample period. The enhanced portfolio we suggested has an information ratio of 76.80% with a tracking error of 4.02% and 1.53% for monthly turnover rate.

Abstract It has long been Taiwan¡¦s primary goal to be the Asia-Pacific financial center, especially after joining WTO, the internationalization of stock exchange, finance, and economy has undoubtedly become an inevitable trend. After Taiwan ensured the policy goals of financial liberalization, internationalization, as well as building Taiwan into an Asia-Pacific operation center in the mid-1980s, government has gradually eased financial restrictions and scrapped limits on foreign investment in the domestic stock market to expand and stabilize stock market through opening to foreign investment, and to direct investors toward rational trading through professional analysis of foreign investment capital. Although foreign capital inflow can strengthen stock market which helps accelerate economic development and internationalization; nevertheless, Mexico¡¦s and Asia¡¦s financial crisis in 1990s due to the abolishment of restrictions on capital movement, turned the policy of easing restrictions on foreign participation in the stock exchange into a double-edged sword. That is to say, while it is easier for enterprises to finance business and expand total demands to accelerate economic growth, the excessive foreign capital movement may impact domestic economy and finance, causing rapid expansion of capital and credit, inflation, as well as appreciation of real exchange rate. This study attempts to explore the dynamic effect of fundamental and stock trading factors on the stock¡¦s return rate after government eased restrictions on foreign participation in the stock exchange at the third stage of entirely opening to foreign investment. The results include that first, after the third stage of opening to foreign investment, foreign capital inflow actually causes the validity of exchange rate and monetary supply to influence stock¡¦s return rate, which changes the interpretation on the cause-and-effect of stock¡¦s return rate. Second, shortened reaction time on the impact of fundamental and trading factors on stock¡¦s return rate can rapidly reflect on stock¡¦s return rate, which helps stabilize stock market. And finally, the decomposition of forecast error variance verifies that financial internationalization indeed structurally changes how Taiwan¡¦s macroeconomic environment interprets stock¡¦s return rate. Moreover, as for trading behavior, the influence of the more speculative trading credit on stock¡¦s return rate decreases, and the foreign capital deregulation helps stabilize stock market. Key word: foreign investment, stock return, fundamental factor, trading factor, unit root, VAR