Wall Street Horizon Blog

Finding Alpha in Scheduling Earnings Announcements

Posted by Barry L. Star on Sep 30, 2014 10:59:00 AM

Information drives investing.  Those who are able to detect trading signals in the overall flow of corporate data — beyond the data everyone is looking at — hold a decisive advantage over those who do not.  The additional data to discern includes a public corporation’s scheduling and revision of an earnings announcement.  Professor Joshua Livnat, New York University, and Assistant Professor Li Zhang, Rutgers Business School, have recently released "Is There News in the Timing of Earnings Announcements?"  The authors find that the mere announcement of a scheduled earnings release date itself can be associated with significant abnormal returns if it either advances or delays the earnings announcement relative to prior expectations.

Their research focuses on firms that advance or delay their earnings announcements by 4 or more trading days from the expected earnings release date.   Identifying and tracking these expected dates requires an expertise in a company’s history—thus the need for extensive, archived and time-stamped data.  Additionally, the sourcing of such data requires a highly accurate and timely methodology.  Wall Street Horizon met their needed criterion.

In examining the earnings historical data, the authors found on average, firms have positive returns for those who advance their earnings date.  Conversely on average, returns are negative for those firms who delay their earnings date. 

From the data sets, the authors created a trading portfolio that holds advancing firms over the last 45 days and was rebalanced monthly.  This portfolio earned an average of 99 basis points a month.  If this investment strategy was extended over the course of a year, potentially on average you could see a return of 1,188 basis points!

Institutional investors and traders are not the only ones who can benefit from the tracking and understanding of earnings dates and revisions.  Financial analysts may want to take advantage of this data to additionally inform their opinions on the profitability of the companies they follow.    Options traders as well may incorporate the data to help construct, inform and modify their trading and risk strategies, especially when the earnings revisions push through the expiration of options contracts.

The ramifications of Livnat and Zhang, suggest that if you are an investor and are not incorporating earnings dates and revisions into your strategies, you are then missing out on potential alpha.  Or, you may be unnecessarily exposing yourself to the downside of a poorly performing stock. 

Barry Star is the CEO of Wall Street Horizon, a provider of extremely accurate and timely corporate event dates and information including earnings calendar dates, dividend dates, options expiration dates, splits, spinoffs and a wide variety of investor-related conferences.

Reference

Is There News in the Timing of Earnings Announcements? 

Authors:

Professor Joshua Livnat, New York University

Assistant Professor Li Zhang, Rutgers Business School

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