The Frontiers of Society, Science and Technology, 2021, 3(1); doi: 10.25236/FSST.2021.030108.
Yirong Fang1, *, Zhicheng Ba2, Shihan Chen3, Peiqing Teng4, Yifan Wu5, Xiaoyu Zhao6
1Penn State University, State College, PA 16802, United States
2Southwest Petroleum University, Chengdu, Sichuan 610500, China
3Emory University, Atlanta, GA 30322, United States
4Nankai University, Tianjin 300000, China
5Shandong University, Jinan, Shandong 250110, China
6Southwest Jiaotong University, Chengdu, Sichuan 610031, China
*Corresponding author
Index Rebalancing is a strategy based on the changes of constituent stocks within the index. The strategy takes long positions for the added stocks and takes short positions for the eliminated stocks. This work is motivated to implement the strategy due to the existence of arbitrage opportunity. With the aid of the China Securities 500 Index (CSI 500), the strategy has been systematically studied in this work. The strategy uses the performance of CSI 500 from Dec 2013 to Dec 2019, 13 times of rebalancing in total. This work calculates the profit and loss of the portfolio and draws the diagram to illustrate it. The volatility is also calculated to show the risk of the portfolio. Numbers of refinements are used in the work, including the adjustment of holding period, Beta hedging and money management. The research results indicate that when the holding period is 20 days, the return is the largest. Beta-hedging is significantly effective, and the use of maximum drawback and take profit can significantly reduce the probability of loss. The strategy is proved to be profitable in inefficient markets. In addition, other investment and business concerns for the strategy are also discussed, as well as the trading recommendation. This work can be helpful for better understanding and applying the strategy.
Index Rebalancing, CSI 500, Hedging, Refinements, Data Analysis
Yirong Fang, Zhicheng Ba, Shihan Chen, Peiqing Teng, Yifan Wu, Xiaoyu Zhao. The Implementation and Refinement of Western Hedge Fund Strategy in Chinese Market: Index Rebalancing of CSI 500. The Frontiers of Society, Science and Technology (2021) Vol. 3, Issue 1: 40-51. https://doi.org/10.25236/FSST.2021.030108.
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