This research combines relational database framework and quantitative equity portfolio models based on the Barra Risk Model Handbook standard steps to design a database and computer platform for multi-factor risk management tasks. The multi-factor model facilitates fast search and efficient selection of descriptors with explanatory power for future stock returns.
The design of database is divided into three steps. First, descriptors are calculated and daily-update modules constructed. This study finds 48 key descriptors which play important roles in explaining stock returns of Taiwan. Second, entity relational model is applied to sort out linkages between pieces of important information in the factor model. Lastly, database auto-run procedures are setup to update the latest raw data on a monthly basis. Model parameter update and portfolio rebalancing is hence made seamless to meet practical operation demand for such a platform.
The development of the Multi-factor risk model is divided into five main steps. (1) Finding significant descriptors. (2) Forming common factors from descriptors. (3) Developing a multi-factor return model. (4) Developing a multi-factor risk model. (5) Running performance analysis and back-testing.
The empirical results show that the average adjusted R-squared of the MFM model is 0.5 during the period of 1998/04~2005/11. For combining descriptors into common factors, we run factor analysis. The multi-collinearity problem existing in the descriptors is well taken care of by such procedures. We use the exponentially weighted averaging method to compute the factor returns and forecast stock ranking. A half-life of 24 months appears to deliver the best performance in Taiwan stock market.
| Identifer | oai:union.ndltd.org:NSYSU/oai:NSYSU:etd-0707109-151630 |
| Date | 07 July 2009 |
| Creators | Tsai, Tsung-Hsun |
| Contributors | jian-chiang Lee, yih jeng, chih-shing hung |
| Publisher | NSYSU |
| Source Sets | NSYSU Electronic Thesis and Dissertation Archive |
| Language | Cholon |
| Detected Language | English |
| Type | text |
| Format | application/pdf |
| Source | http://etd.lib.nsysu.edu.tw/ETD-db/ETD-search/view_etd?URN=etd-0707109-151630 |
| Rights | restricted, Copyright information available at source archive |
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