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Generating Alpha With Earnings Date Revisions

Tue November 24, 2015

Company earnings are the bedrock of financial analysis and investment. But can earnings announcement date revisions be used to predict future prices in a manner that could be profitably traded upon?

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 past 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, PsychSignal). 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.

[Related: “The Truth About Research”] 

As a software and services firm focused on quantitative research and trading solutions, we are always interested in alternative ways to apply quantitative techniques for trading and investment purposes. This fall, we decided to look at company earnings from a different perspective. This time, we looked at how calendar events affect forecasts: specifically, we wanted to test whether earnings announcement date revisions can be used for predicting future prices in a manner that could be profitably traded upon.

We reviewed the recent research papers of Joshua Livnat and Eric So, both of whom look at whether changes in the earnings announcement dates can be used to generate returns.

Research Methodology

We conducted our study using our own research software, TimeBase and QuantOffice. Below are the steps we followed for this research:  

  1. We built a data loader to populate TimeBase with the Wall Street Horizon daily snapshots of company future earnings announcement dates for S&P500 stocks for the period Jan. 3, 2006, to Sept. 2, 2015.

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