Residual Inversion Factor
factor.formula
Small order capital flow intensity:
Large order capital flow intensity:
Residual inversion momentum factor:
in:
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The transaction amount of small purchase orders at the $\tau$th moment indicates the buying behavior dominated by retail investors or small funds.
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The small order selling transaction amount at the $\tau$th moment indicates the selling behavior dominated by retail investors or small funds.
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The transaction amount of large-order purchases at the $\tau$th moment indicates the buying behavior dominated by institutions or large funds.
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The transaction amount of large-order selling at the $\tau$th moment indicates the selling behavior dominated by institutions or large funds.
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The intensity of small order fund flow as of the $t$th moment represents the net inflow or net outflow intensity of small order funds over a period of time. The value range is [-1,1], where positive values represent net inflows and negative values represent net outflows.
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The intensity of large-order fund flow as of the $t$th moment represents the net inflow or net outflow intensity of large-order funds over a period of time. The value range is [-1,1], where positive values represent net inflows and negative values represent net outflows.
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At time $t$, the residual is obtained by regressing the reversal momentum factor based on the past 20 trading days. The original reversal momentum factor is defined as the rate of return of the past 20 trading days. This residual term represents the reversal momentum signal after eliminating the influence of capital flow, which can more accurately reflect the irrational reversal behavior in the market.
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The constant term of the regression equation represents the baseline level of the inverse momentum factor when the capital flow intensity is zero.
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The coefficients of the regression equation represent the influence of small order capital flow intensity and large order capital flow intensity on the reversal momentum factor.
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The residual term of the regression equation represents the part of the inverse momentum factor that cannot be explained by the intensity of capital flows. It is the core component of this factor and reflects the part of excess returns that cannot be explained by capital flows.
factor.explanation
The residual reversal momentum factor removes the part of the traditional reversal momentum factor related to the strength of small and large order capital flows through regression analysis, retaining the residual part that cannot be explained by the strength of capital flows. This method aims to capture the reversal momentum effect caused by irrational behavior or other factors in the market, thereby improving stock selection results. This factor assumes that after eliminating the impact of capital flows, the remaining reversal momentum signal can better reflect the real excess return opportunities in the market. By regressing the capital flows of small and large orders separately, this factor can also provide insights into the impact of different investor group behavior patterns on market reversal momentum.