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Article

A Trading Strategy to Profit from Overly Aggressive Downward Earnings Guidance

Randall S. Billingsley and Bruce G. Resnick
The Journal of Portfolio Management Winter 2014, 40 (2) 64-68; DOI: https://doi.org/10.3905/jpm.2014.40.2.064
Randall S. Billingsley
is a professor at the Pamplin College of Business at Virginia Tech in Blacksburg, VA.
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  • For correspondence: r.billingsley@vt.edu
Bruce G. Resnick
is a professor at the Wake Forest University School of Business in Winston-Salem, NC.
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  • For correspondence: resnicbg@wfu.edu
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Abstract

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.

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A Trading Strategy to Profit from Overly Aggressive Downward Earnings Guidance
Randall S. Billingsley, Bruce G. Resnick
The Journal of Portfolio Management Jan 2014, 40 (2) 64-68; DOI: 10.3905/jpm.2014.40.2.064

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A Trading Strategy to Profit from Overly Aggressive Downward Earnings Guidance
Randall S. Billingsley, Bruce G. Resnick
The Journal of Portfolio Management Jan 2014, 40 (2) 64-68; DOI: 10.3905/jpm.2014.40.2.064
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