Mid-term reversal
factor.formula
Calculation formula:
Formula explanation:
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It represents the cumulative return from month (t-59) to month (t-12). This return is the core of this factor and is used to measure the performance of stocks in the past period of time in the medium term.
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Indicates the daily rate of return on the dth day. Here it refers to the daily simple rate of return, that is, (today's closing price - yesterday's closing price) / yesterday's closing price.
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Indicates the current month. For example, if t is August 2024, then t-59 refers to September 2019, and t-12 refers to August 2023.
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Represents a continuous multiplication operation, which is to add 1 to the daily yield from month (t-59) to month (t-12), then multiply it, and then subtract 1 to obtain the cumulative yield for this period.
factor.explanation
The mid-term reversal effect is based on the psychological bias of investors to overreact to information in the short term, causing stock prices to deviate from reasonable values in the short term. This mispricing will gradually correct over time, thus creating a reversal opportunity. The idea of constructing this factor is to measure the historical performance of stocks by calculating their cumulative returns over the past period (here, from month t-59 to month t-12). If a stock performs poorly in the aforementioned period (low cumulative return), there may be a reversal opportunity for the stock in the future, that is, the stock price may rise in the future; conversely, if the stock performs well in the previous period (high cumulative return), it may face the risk of falling in the future. Therefore, by going long on stocks that performed poorly in the previous period and shorting stocks that performed well in the previous period, the excess returns brought by this mid-term reversal can be captured to a certain extent.