blog from The Deltix Quantitative Research Team republished with permission
This study is an update of the research using data from Wall Street Horizon that we first published on our blog in November 2015. At that time, we had data from January 2006 to September 2015. Now we have data to March 2017. We continue to be impressed by the stability of the returns.
Company earnings are the bedrock of financial analysis and investment. Sell-side, buy-side and independent research analysts perform quantitative and qualitative analysis of companies, their peers and their markets in order to provide guidance for short-term earnings and earnings growth for in-house use or for clients. Innovations in earnings analysis over the last few years have included crowd-sourced earnings estimates (e.g. Estimize) and sentiment derived from the news and social media (e.g. Ravenpack, Social Market Analytics). The overriding objective of company analysis has been and still is to forecast as accurately as possible a company’s future earnings and so guide asset allocation and trading decisions.
In this study, we looked at whether earnings announcement date revisions can be used for predicting future prices in a manner that could be profitably traded upon.
We reviewed the research papers of Joshua Livnat (http://www.wallstreethorizon.com/livnat) and Eric So (http://www.wallstreethorizon.com/So), both of whom look at whether changes in the earnings announcement dates can be used to generate returns.
We conducted our study using our own research software, TimeBase and QuantOffice. In the webinar, we will show how this and other research can be back-tested in DeltixQuantHub, with full control over the parameters used in the study. Below are the steps we followed for this research:
Our results supported the findings of the previous researchers. Specifically, we found:
For both hedged and un-hedged versions of the strategy, for the period January 2006 to March 2017, the back-tested strategies showed Sharpe Ratios of 1.96 (unhedged) and 1.99 (hedged) with average profit per share of 10 cents and 8 cents respectively. By comparison, in the prior study covering the period from January 2006 to September 2015, the back-tested strategies showed Sharpe Ratios of 2.08 (unhedged) and 2.12 (hedged). Average profit per share remained unchanged.
As such, we continue to conclude that there are profitable opportunities from trading with signals derived from WSH earnings date announcement data.
The P&L curve for the unhedged version of the strategy is shown below:
The full results are included in our research paper.
You can also review the prior study.