Monthly CAPM Alpha Ranking for a Chinese Equity Portfolio

Summary

This example turns a CAPM regression into a monthly stock-selection process. It takes a recent window of daily returns for eligible constituents, adjusts stock and benchmark returns by a stated daily risk-free rate, and regresses each stock’s returns against the CSI 300 benchmark. It ranks estimated intercepts and selects a fixed-size group from the low end of that ranking, then rebalances monthly. The universe is filtered to exclude suspended and specially treated shares, and the code includes order instructions for replacing holdings.

The document supplies implementation logic, not backtest results or evidence that the ranking earns excess returns. The sample leaves important choices unexplained, including why the lowest estimated alphas are selected and how regression uncertainty is handled. Its portfolio sizing logic also deserves review: it computes available cash per new position but submits a fixed target weight. The strategy therefore illustrates a CAPM-based screening workflow, rather than establishing a reliable risk-control method.

Key ideas

• The strategy estimates stock-specific CAPM intercepts by regressing recent returns on benchmark returns.
• It applies a daily risk-free rate adjustment to both stock and benchmark returns.
• It ranks estimated intercepts and selects stocks from the low end for monthly rebalancing.
• The universe excludes suspended shares and stocks flagged for special treatment.
• No backtest results are provided, and the rationale for selecting low-alpha stocks is unexplained.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.