Post-Earnings Drift Signals from EPS Surprises and Price Reactions

Summary

This strategy turns post-earnings announcement drift into a rules-based equity signal. It compares reported earnings per share with the estimate, expressing the difference as a percentage of the estimate’s absolute value. A surprise must exceed a configurable threshold in either direction. The strategy then checks whether price moved in the same direction, either on the earnings bar or on the next daily bar, according to a selectable mode.

Concordant positive surprises and price reactions trigger longs; shorts require the corresponding negative signal and are disabled by default. Open positions close after a configurable number of bars, with the default set to 60. The code uses earnings data requests with lookahead disabled and plots report markers, signals and diagnostic percentages. The accompanying text attributes drift to gradual investor response, but provides no empirical results supporting this implementation. It does not specify protective stops or profit targets, and actual data availability, reaction timing, holding period, costs and shorting rules may affect results.

Key ideas

• The signal measures earnings surprises against estimates as a percentage of the estimate’s absolute value.
• A configurable threshold filters small surprises, while price reaction must agree with the surprise direction.
• Reaction confirmation can use either the earnings bar or the following daily bar.
• Longs are enabled by default, while shorts require an explicit setting.
• Positions close after a configurable bar count, and the document presents no performance evidence for the rules.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.