Two Branch Risk Factors Model for Stock Prediction

Abstract

The fluctuation of stock market is affected by many factors, such as human psychology, macro-economy, operation state of listed companies and industry. These factors can be regarded as risk factors that affect the excess return of stocks. According to the Arbitrage Pricing Theory, excess return and risk are closely related, and the excess return of stock is brought by taking certain risks. With the development of Chinese stock market, more and more risk factors that affect stock return are quantified. Among them, technical factors and fundamental factors are the most important two categories. Technical factors mainly reflect the trend of stock price and the trading activity of the market. Fundamental factors mainly reflect the operation and profitability of listed companies. These two kinds of factors are also the most commonly used in the quantitative model. Based on these two kinds of factors, we proposed a two branch risk factors model, which can combine these two kinds of factors to select stocks.