Quality Factor Long-Short Portfolio by Market Cap

1class EarningsQualityFactor(XXX):
2
3def Initialize(self):
4self.SetStartDate(2000, 1, 1)
5self.SetCash(100000)
6
7self.coarse_count = 3000
8
9self.symbol = self.AddEquity('SPY', Resolution.Daily).Symbol
10
11self.accruals_data = {}
12
13self.long = []
14self.short = []
15
16self.data = {}
17
18self.selection_flag = True
19self.UniverseSettings.Resolution = Resolution.Daily
20self.AddUniverse(self.CoarseSelectionFunction, self.FineSelectionFunction)
21
22self.Schedule.On(self.DateRules.MonthEnd(self.symbol), self.TimeRules.AfterMarketOpen(self.symbol), self.Selection)
23
24def OnSecuritiesChanged(self, changes):
25for security in changes.AddedSecurities:
26    security.SetLeverage(10)
27    security.SetFeeModel(CustomFeeModel(self))
28
29def CoarseSelectionFunction(self, coarse):
30if not self.selection_flag:
31    return Universe.Unchanged
32
33selected = [x.Symbol for x in coarse if x.HasFundamentalData and x.Market == 'usa']
34
35return selected
36
37def FineSelectionFunction(self, fine):
38fine = [x for x in fine if x.MarketCap != 0 and      \
39        x.CompanyReference.IndustryTemplateCode != "B" and \
40        ((x.SecurityReference.ExchangeId == "NYS") or (x.SecurityReference.ExchangeId == "NAS") or (x.SecurityReference.ExchangeId == "ASE")) and   \
41        x.FinancialStatements.BalanceSheet.CurrentAssets.Value != 0 and  \
42        x.FinancialStatements.BalanceSheet.CashAndCashEquivalents.Value != 0 and    \
43        x.FinancialStatements.BalanceSheet.CurrentLiabilities.Value != 0 and    \
44        x.FinancialStatements.BalanceSheet.CurrentDebt.Value != 0 and   \
45        x.FinancialStatements.IncomeStatement.DepreciationAndAmortization.Value != 0 and    \
46        x.FinancialStatements.BalanceSheet.GrossPPE.Value != 0 and  \
47        x.FinancialStatements.IncomeStatement.TotalRevenueAsReported.Value != 0 and \
48        x.FinancialStatements.CashFlowStatement.OperatingCashFlow.Value != 0 and    \
49        x.EarningReports.BasicEPS.Value != 0 and    \
50        x.EarningReports.BasicAverageShares.Value != 0 and  \
51        x.OperationRatios.DebttoAssets.Value != 0 and   \
52        x.OperationRatios.ROE.Value != 0
53        ]
54        
55if len(fine) > self.coarse_count:
56    sorted_by_market_cap = sorted(fine, key = lambda x: x.MarketCap, reverse=True)
57    top_by_market_cap = [x for x in sorted_by_market_cap[:self.coarse_count]]
58else:
59    top_by_market_cap = fine
60
61for stock in top_by_market_cap:
62    symbol = stock.Symbol
63
64    if symbol not in self.accruals_data:
65        # Data for previous year.
66        self.accruals_data[symbol] = None
67        
68    # Accrual calc.
69    current_accruals_data = AcrrualsData(stock.FinancialStatements.BalanceSheet.CurrentAssets.Value, stock.FinancialStatements.BalanceSheet.CashAndCashEquivalents.Value,
70                                        stock.FinancialStatements.BalanceSheet.CurrentLiabilities.Value, stock.FinancialStatements.BalanceSheet.CurrentDebt.Value, stock.FinancialStatements.BalanceSheet.IncomeTaxPayable.Value,
71                                        stock.FinancialStatements.IncomeStatement.DepreciationAndAmortization.Value, stock.FinancialStatements.BalanceSheet.TotalAssets.Value,
72                                        stock.FinancialStatements.IncomeStatement.TotalRevenueAsReported.Value)
73    
74    # There is not previous accruals data.
75    if not self.accruals_data[symbol]:
76        self.accruals_data[symbol] = current_accruals_data
77        continue
78    
79    current_accruals = self.CalculateAccruals(current_accruals_data, self.accruals_data[symbol])
80    
81    # cash flow to assets
82    CFA = stock.FinancialStatements.CashFlowStatement.OperatingCashFlow.Value / (stock.EarningReports.BasicEPS.Value * stock.EarningReports.BasicAverageShares.Value)
83    # debt to assets
84    DA = stock.OperationRatios.DebttoAssets.Value
85    # return on equity
86    ROE = stock.OperationRatios.ROE.Value
87    
88    if symbol not in self.data:
89        self.data[symbol] = None
90
91    self.data[symbol] = StockData(current_accruals, CFA, DA, ROE)
92    self.accruals_data[symbol] = current_accruals_data
93
94# Remove not updated symbols.
95updated_symbols = [x.Symbol for x in top_by_market_cap]
96not_updated = [x for x in self.data if x not in updated_symbols]
97for symbol in not_updated:
98    del self.data[symbol]
99    del self.accruals_data[symbol]
100    
101return [x[0] for x in self.data.items()]
102
103def OnData(self, data):
104if not self.selection_flag:
105    return
106self.selection_flag = False
107
108# Sort stocks by four factors respectively.
109sorted_by_accruals = sorted(self.data.items(), key=lambda x: x[1].Accruals, reverse=True) # high score with low accrual 
110sorted_by_CFA = sorted(self.data.items(), key=lambda x: x[1].CFA)                       # high score with high CFA
111sorted_by_DA = sorted(self.data.items(), key=lambda x: x[1].DA, reverse=True)           # high score with low leverage
112sorted_by_ROE = sorted(self.data.items(), key=lambda x: x[1].ROE)                       # high score with high ROE
113
114score = {}
115
116# Assign a score to each stock according to their rank with different factors.
117for i, obj in enumerate(sorted_by_accruals):
118    score_accruals = i
119    score_CFA = sorted_by_CFA.index(obj)
120    score_DA = sorted_by_DA.index(obj)
121    score_ROE = sorted_by_ROE.index(obj)
122    score[obj[0]] = score_accruals + score_CFA + score_DA + score_ROE
123        
124sorted_by_score = sorted(score.items(), key = lambda x: x[1], reverse = True)
125tercile = int(len(sorted_by_score) / 3)
126long = [x[0] for x in sorted_by_score[:tercile]]
127short = [x[0] for x in sorted_by_score[-tercile:]]
128
129# Trade execution.
130# NOTE: Skip year 2007 due to data error.
131if self.Time.year == 2007:
132    self.Liquidate()
133    return
134
135stocks_invested = [x.Key for x in self.Portfolio if x.Value.Invested]
136for symbol in stocks_invested:
137    if symbol not in long + short:
138        self.Liquidate(symbol)
139
140for symbol in long:
141    if self.Securities[symbol].Price != 0 and self.Securities[symbol].IsTradable:  # Prevent error message.
142        self.SetHoldings(symbol, 1 / len(long))
143for symbol in short:
144    if self.Securities[symbol].Price != 0 and self.Securities[symbol].IsTradable:  # Prevent error message.
145        self.SetHoldings(symbol, -1 / len(short))
146
147# Source: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3188172                
148def CalculateAccruals(self, current_accrual_data, prev_accrual_data):
149delta_assets = current_accrual_data.CurrentAssets - prev_accrual_data.CurrentAssets
150delta_cash = current_accrual_data.CashAndCashEquivalents - prev_accrual_data.CashAndCashEquivalents
151delta_liabilities = current_accrual_data.CurrentLiabilities - prev_accrual_data.CurrentLiabilities
152delta_debt = current_accrual_data.CurrentDebt - prev_accrual_data.CurrentDebt
153dep = current_accrual_data.DepreciationAndAmortization
154total_assets_prev_year = prev_accrual_data.TotalAssets
155
156acc = (delta_assets - delta_liabilities - delta_cash + delta_debt - dep) / total_assets_prev_year
157return acc
158
159def Selection(self):
160if self.Time.month == 7:
161    self.selection_flag = True
162
163class AcrrualsData():
164def __init__(self, current_assets, cash_and_cash_equivalents, current_liabilities, current_debt, income_tax_payable, 
165                depreciation_and_amortization, total_assets, sales):
166self.CurrentAssets = current_assets
167self.CashAndCashEquivalents = cash_and_cash_equivalents
168self.CurrentLiabilities = current_liabilities
169self.CurrentDebt = current_debt
170self.IncomeTaxPayable = income_tax_payable
171self.DepreciationAndAmortization = depreciation_and_amortization
172self.TotalAssets = total_assets
173
174self.Sales = sales
175
176class StockData():
177def __init__(self, accruals, cfa, da, roe):
178self.Accruals = accruals
179self.CFA = cfa
180self.DA = da
181self.ROE = roe
182
183def MultipleLinearRegression(x, y):
184x = np.array(x).T
185x = sm.add_constant(x)
186result = sm.OLS(endog=y, exog=x).fit()
187return result
188
189# Custom fee model
190class CustomFeeModel(FeeModel):
191def GetOrderFee(self, parameters):
192fee = parameters.Security.Price * parameters.Order.AbsoluteQuantity * 0.00005
193return OrderFee(CashAmount(fee, "USD"))