A Sorting Strategy for Alpha Based on ROE Linked with Global Financial Market
- 10.2991/assehr.k.211209.369How to use a DOI?
- ROE; Carhart four-factor; alpha
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.
- © 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 -