Guo Qiang: Is it the quantitative transaction that triggered the short-term large fluctuations of A shares?

Wen 丨 Guo Qiang (Macro Researcher of a Financial Institution)

Since the end of September, some A-share stocks have experienced obvious abnormal fluctuations, which has triggered heated discussions in the market.

Since September 24, many popular trading stocks in the market have seen the previous trading limit, and the next trading day directly fell to the stop or touched the intraday stop.

On September 27, 12 non-ST stocks such as Guangyu Development, Minmetals Rare Earth, Oriental Energy, BOC Velvet, Yanhua Intelligent, Weishitong, Shanghai Construction Engineering, Huayang New Materials, Shenzhen Expressway, Jingyuntong, Xinneng Technology, Taijing Technology, etc., fell to a stop or touched a stop in the previous day' rise and stop; on September 28, Jinyuan Shares, Shunfa Hengye, Star Power, Golden Seed Wine, Leshan Power, Shangchai Shares, Loncin General Motors, Hangzhou Thermal Power, etc. fell or touched a stop in the previous day's up and down stocks; on September 29, This situation is even more climactic - Guangyu Development, Pangang Vanadium and Titanium, Petrochemical Machinery, Weichai Heavy Machinery, Blue Flame Holdings, Qianyuan Power, Shanghai Electric Power, Changchun Gas, Xinchao Energy, Petrochemical Oil Service, Xintian Green Energy, New Natural Gas, Bomaike, JinHongshun, CLP Motor, Jiufeng Energy, Hongtong Gas and other 20 stocks appeared in the above situation.

Many people blame this large fluctuation on the rapid development of quantitative investment.

However, the author is not surprised by the fluctuations this time.

First of all, the development of quantitative trading and the growth of quantitative trading scale can indeed promote the mood fluctuations of the market to a certain extent. According to estimates by the Asset Management Association of China and CITIC Securities, the scale of quantitative private equity management may be around one trillion yuan, accounting for about 20% of the scale of the private securities fund industry. I have to say that this scale is already quite weighty, in addition, there are many individual investors, will also develop some simple procedures to carry out quantitative trading. Although the term quantitative trading sounds a bit high-end, for those who know programming techniques and trading strategies, fully automated or semi-automatic quantitative trading programs are not complicated. On the other hand, quantitative trading is generally associated with high-frequency trading, so the subject of the transaction generally chooses the most active hot stocks in the current market. Under normal circumstances, quantitative trading and high-frequency trading can enhance market liquidity and improve pricing efficiency. However, due to the serious problem of convergence of strategies in quantitative trading, when the conditions for triggering transactions appear, a large number of procedures place orders at the same time, one is to cause extreme transaction congestion, and the other is that it may be in a very short period of time to evacuate the liquidity of the market, in the context of the current up and down limit restrictions in China, resulting in the rise and fall of stocks. In this regard, the large fluctuations of short-term individual stocks will indeed be affected by quantitative trading and high-frequency trading.

Secondly, the situation of small short-term fluctuations in individual stocks has always existed, but it is easy for investors to forget. For example, on April 20, 2021, Xiaokang shares rose and stopped on the same day; on April 21, Xiaokang shares opened and fell rapidly, and finally sealed the stop; on April 22, Xiaokang shares opened low and went high, and then quickly sealed the up and down board. On May 6, 2021, Langzi shares touched the limit in the intraday, but on May 7, it directly opened low and went low, and finally sealed the stop. So why did the market not react strongly to this fluctuation at that time, open the k line of these stocks can be found that the period of large fluctuations is the rising period of the sector, even if investors are accidentally covered, the loss will not be too large. The situation during this period is just the opposite: some time ago, the concept of "new energy revolution" was hyped by the market, and the scope expanded from lithium batteries and lithium mines to the concept of green electricity in wind power, hydropower, and photovoltaics, while the price increase of bulk commodities in the same period, the "double control and double limit" policy and other factors have allowed the market to push up the concept stocks such as coal and electricity, and related stocks, especially leading stocks, have risen hugely. But the problem arises, because in the market, the investment strategy of large investment institutions is more stable and liquid than quantitative trading and retail investors, and the stock indexes of these concepts are pushed up by hot money in the short term to double or even double or triple, and liquidity is the best time, which is the time when the funds of large institutions are most easily shipped. Therefore, there will inevitably be institutions that will begin to ship bags for safety, or large-scale warehouse adjustment. And short-term funds and quantitative trading funds, may be due to trading inertia, will still be some popular stocks for short-term operation for profit, if encountered in this stock in the big funds shipped, then short-term funds are difficult to continue to push the stock price up, to the most common board operation as an example, if the previous day up and down, but the next day if there is a rush to ship, may be in the auction stage to suppress the stock price to the deep water area, and the short-term funds of the killing preference and quantitative trading stop loss strategy may be resonant, resulting in a sharp decline in stocks.

In fact, if only individual stocks appear in such a situation, it will not cause panic, but if it is a consensus judgment of various different institutions in the market on the entire sector, it will cause the plate to fall in tandem, basically the trend of coal and electricity in these days: falling - a small rebound - continue to fall. Trends such as Shanxi Coking and Lianchuang Shares are typical capital adjustments. On October 13, a total of 46 non-st stocks fell to a halt, most of which belonged to the green electricity, coal and other sectors that had been speculated in the early stage.

Therefore, the recent sharp fluctuations in the market are mainly caused by the ebb and flow period of short-term capital speculation, which is superimposed on the institutional swap period. Quantitative trading and high-frequency trading have only played a certain role in fueling this major determinant, and the strong reaction of investors to the recent market is only normal feedback under the effect of losing money.

For investors, stepping on the investment rhythm, enhancing risk awareness, and improving trading strategies are the top priorities, and the difficulty of future transactions will become more and more difficult, and the timeliness requirements for transactions are getting higher and higher, because many counterparties to transactions have become robots.

For regulators, it is the focus to complete the rules of market transactions, reduce institutional arbitrage, and strictly crack down on violations. For quantitative trading, if the investment is more than the battlefield, the author is more inclined to believe that quantitative investment or programmatic trading is a tactical upgrade or equipment upgrade of investors, and it is also the embodiment of market efficiency, after all, in foreign markets, quantitative trading is also a common phenomenon.

(The article represents the views of the author only.) Editor-in-charge email: [email protected]. ）