Stock Selection Model Based on Quality Factor: Evidence from Chinese A-share Market

Abstract

This paper extracts four variables through the derivation of Gordon's dividend growth model, and constructs the evaluation index system of quality factors from 12 secondary indicators of four single factors of profitability, growth, safety and dividend distribution. We use integration method, mixed method and principal component analysis to construct Quality factor. This paper takes the A-share market as the research object to back-test the stock selection model, and compares and analyzes the robustness, yield and risk of the three models. The results show that the stock selection model of the quality factor under the integration method performs best; and the quality of the company has a greater impact on the excess return of the investment portfolio and less on the risk, but the hedging portfolio can effectively reduce the risk.