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Investors often face a difficult problem: should they enter the market when the market is stable or when the market fluctuates. Market volatility is a double-edged sword. When the market is stable, the stock price volatility is very low, investors do not have to worry about large losses, but it is also difficult to obtain high returns; When the market fluctuates sharply, high volatility will bring both high returns and huge losses. We have constructed investment strategies under different volatility environments based on stock market value, which can significantly improve investors’ returns and reduce pullback and volatility.
Future performance of stocks with different market capitalization under different volatility environment
Firstly, we divide the A-share market according to the market value, and use MSCI China A-share large market value, medium market value and small market value index to represent the markets with different market value levels. For each trading day, we observe the return volatility over the past 22 days. We divide all trading days since 2010 into three equal parts according to the size of volatility, and divide them into three volatility environments: low volatility, medium volatility and high volatility, and count the income of the next trading day. Figure 1 shows the average return of each volatility observation level in the next trading day since 2010.
