{"id":965,"date":"2025-08-12T17:30:00","date_gmt":"2025-08-12T17:30:00","guid":{"rendered":"https:\/\/www.tejwin.com\/en\/insights\/factor-strategy-capital-gain-overhang-part-2\/"},"modified":"2026-09-23T18:07:04","modified_gmt":"2026-09-23T18:07:04","slug":"factor-strategy-capital-gain-overhang-part-2","status":"publish","type":"insight","link":"https:\/\/www.tejwin.com\/en\/insights\/factor-strategy-capital-gain-overhang-part-2\/","title":{"rendered":"Factor Strategy \u2013 Capital Gain Overhang | Part 2\u00a0"},"content":{"rendered":"\n
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Introduction\u00a0<\/strong><\/h2>\n

In the previous study : Factor Research \u2013Capital Gain Overhang | Part 1<\/strong><\/a>, we examined the Capital Gain Overhang (CGO) factor, designed to capture the behavioral bias known as the Disposition Effect. By measuring the gap between current market prices and investors\u2019 average cost basis, CGO quantifies unrealized gains and losses at the market level. Empirical tests in Taiwan\u2019s equity market confirmed that CGO is a meaningful predictor of future returns: high-CGO stocks consistently outperformed low-CGO stocks, generating significant positive alpha beyond standard Fama\u2013French models, especially over medium- to long-term horizons<\/mark><\/strong>.<\/p>\n

\ud83d\udc49Part 1\uff1aFactor Research\uff0dCapital Gain Overhang.<\/a><\/em><\/strong><\/blockquote>\n

Strateg<\/strong>y Construction<\/strong><\/h2>\n

To evaluate the practical performance of CGO, we construct and backtest three types of strategies. The first is a pure CGO factor strategy, serving as the baseline. The other two are enhanced versions that combine CGO with low-risk filters<\/mark><\/strong>. These enhanced strategies adopt a Sequential Sort approach<\/mark><\/strong>: first applying a low-risk filter to narrow the investment universe, and then ranking the remaining stocks by CGO to select the final portfolio.<\/p>\n