Proceedings of the 2021 3rd International Conference on Economic Management and Cultural Industry (ICEMCI 2021)

A Sorting Strategy for Alpha Based on ROE Linked with Global Financial Market

Authors
Shenkai Wu1, *
1Graduate School of Arts and Sciences, Columbia University in the City of New York, 10027, New York, United States of America
*Corresponding author. Email: shenkai.wu@columbia.edu
Corresponding Author
Shenkai Wu
Available Online 15 December 2021.
DOI
10.2991/assehr.k.211209.369How to use a DOI?
Keywords
ROE; Carhart four-factor; alpha
Abstract

Finding sorting variables for alpha is crucial in investing stocks. The alpha, also referred to as abnormal return, measures the investment strategy’s ability to beat the market. It is the part of portfolio return that the existing model cannot explain. Return on equity (ROE) is one of the key factors to evaluate the performance of a corporation. Generally, higher ROE indicates the better profitability of the corporation. In this paper, the Carhart four-factor model is used to simulate alpha, and ROE is applied as a sorting variable. After analyzing quarterly corporate data from 1991 to 2020, this paper proposes a long-term investment strategy of buying stocks with 10% lowest ROE and selling stocks with 10% highest ROE. This strategy brings 1.477% abnormal return annually, which may provide some suggestions for investors.

Copyright
© 2021 The Authors. Published by Atlantis Press International B.V.
Open Access
This is an open access article under the CC BY-NC license.

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Volume Title
Proceedings of the 2021 3rd International Conference on Economic Management and Cultural Industry (ICEMCI 2021)
Series
Advances in Economics, Business and Management Research
Publication Date
15 December 2021
ISBN
10.2991/assehr.k.211209.369
ISSN
2352-5428
DOI
10.2991/assehr.k.211209.369How to use a DOI?
Copyright
© 2021 The Authors. Published by Atlantis Press International B.V.
Open Access
This is an open access article under the CC BY-NC license.

Cite this article

TY  - CONF
AU  - Shenkai Wu
PY  - 2021
DA  - 2021/12/15
TI  - A Sorting Strategy for Alpha Based on ROE Linked with Global Financial Market
BT  - Proceedings of the 2021 3rd International Conference on Economic Management and Cultural Industry (ICEMCI 2021)
PB  - Atlantis Press
SP  - 2250
EP  - 2254
SN  - 2352-5428
UR  - https://doi.org/10.2991/assehr.k.211209.369
DO  - 10.2991/assehr.k.211209.369
ID  - Wu2021
ER  -