Building Alpha Factors from Northbound Stock Holdings and Flows
Summary
The document summarizes research using public Northbound investor holdings and trading-flow data to build 12 factors for Chinese equities. It reports testing those factors from December 2016 through December 2019 across Northbound-held stocks, the CSI 800, and the CSI 300. Most factors reportedly showed stock-selection value; some also had industry-selection value. Holding-based factors behaved like composites of established alpha styles and lost much of their effect after orthogonalization, while most flow-behavior factors retained significance.
The research combines effective single factors into holdings, flow, and broader Northbound composites. It reports slow factor decay, with half-lives generally exceeding 20 trading days, and gives RankIC and portfolio results for the composites, including industry portfolios. These are historical findings from limited samples. The document also notes incomplete market coverage and warns that filling missing values can distort factor distributions and performance, so results may not generalize to the full market or future periods.
Key ideas
- The study constructs 12 factors from Northbound holdings and trading behavior.
- Most tested factors reportedly selected stocks in Northbound holdings, the CSI 800, and the CSI 300.
- Holdings-based factors lost much of their effect after orthogonalization, while most flow factors retained significance.
- Reported factor half-lives generally exceeded 20 trading days, implying relatively slow decay in the tested period.
- Limited coverage and missing-value treatment can distort results when applying the factors market-wide.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.