A Trading Strategy to Profit from Overly Aggressive Downward Earnings Guidance

The empirical evidence presented in this article suggested that it is potentially possible for an informed trader in after-hours trading to earn abnormal returns from identifying and investing in stocks with a positive earnings surprise. The strategy is based on a simple (naïve) moving average time...

Full description

Saved in:
Bibliographic Details
Published in:Journal of portfolio management 2014-01, Vol.40 (2), p.64-68
Main Authors: Billingsley, Randall S., Resnick, Bruce G.
Format: Article
Language:English
Subjects:
Abnormal returns
Earnings
Earnings forecasting
Earnings trends
Investment policy
Liquor
Portfolio management
Revisions
Securities prices
Stock prices
Stocks
Studies
Citations: Items that this one cites
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:The empirical evidence presented in this article suggested that it is potentially possible for an informed trader in after-hours trading to earn abnormal returns from identifying and investing in stocks with a positive earnings surprise. The strategy is based on a simple (naïve) moving average time series forecast of earnings, conditional on the moving average forecast and the last analyst s forecast both being positive, and with the former being larger than the latter. These are likely firms that have been either subject to aggressive downward earning guidance or just firms for which analysts have become less favorably inclined about earnings prospects. These findings should prove useful to informed investors who trade or construct portfolios based on the information in earnings surprises. [PUBLICATION ABSTRACT]
ISSN:0095-4918
2168-8656
DOI:10.3905/jpm.2014.40.2.064