Selecting Stocks on Earnings Surprises and Post-Announcement Gaps

Summary

This strategy combines a qualitative earnings-surprise screen with the stock’s price gap after an earnings announcement. It identifies surprise candidates by analyzing analyst report titles for language suggesting results exceeded expectations, rather than calculating the difference between reported and forecast earnings. It then measures the next-day gap relative to the market index using the JOR factor and selects the 50 candidates with the largest values for an equally weighted, periodically rebalanced portfolio.

The document reports that the analyst-title screen produced more than three months of excess returns, while the JOR factor retained stock-selection power after industry, market-cap, and Barra-style adjustments. It also reports historical portfolio outperformance against the CSI 500 and a favorable comparison with stock and hybrid funds. These are claims from the source’s research summary, not independently validated here. The portfolio leans toward growth sectors and stocks with relatively strong prior momentum. The source flags broad market risk and the possibility that factor effectiveness may change; it does not provide enough detail here to assess implementation costs or robustness.

Key ideas

• Analyst report titles are analyzed for language that signals earnings above expectations.
• JOR measures the stock’s next-day earnings-announcement gap relative to the market index.
• The portfolio selects the 50 surprise candidates with the largest JOR values and weights them equally.
• The reported factor results persist after industry, market-cap, and style adjustments.
• The strategy’s historical results may not persist if market conditions or factor effectiveness change.

Tags

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