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In recent years, the economic exchanges between China and Taiwan have become more frequent, hence the Chinese financial market is the main target that we should research and participate in actively. This study refers to Barra Multi-Factor Modeling process to construct a China Multi-Factor Model. We then apply MFM to establish a Shanghai Stock Exchange 50 enhanced index fund. The first objective of this study is to discover significant factors which can explain excess return of securities. The second is to identify significant factors to forecast stock returns and show the alpha effect in an Enhanced Index Fund via a new weight allocating model developed by this study. The result shows that the eight significant factors are Earning Quality, Efficiency, Growth, Momentum, Size, Trading Activity, Value, and Volatility. The performance of Enhanced Index Fund is better than that of the benchmark. Information ratio is 0.86, and turnover rate is 213%, which is acceptable. |
