Analysts recommendations are quite puzzling topic among both practitioners and academics as well. The most important question related to the analysts is straightforward: what is the value of their recommendations? The research paper of Azvedo and Müller (2020) brings light on this topic, but also explores the relation of analysts recommendations and market anomalies. In line with other literature, it seems that the recommendations are significantly more valuable in international markets compared to the US market. While the prediction ability of analysts is not present in the US market, less developed markets and markets with higher limits-to-arbitrage are connected with valuable recommendations. Secondly, using around 200 cross-sectional anomalies, authors show that analysts are more lined up with anomaly-based composite mispricing measures in international markets. Therefore, there is not a bias from analysts to recommend overvalued stocks in global markets compared to the well-developed US market. We highlight several results and tables, but the paper is full of impressive results, ideas and tables. Therefore, we invite you to read this blog post as well as the source research paper.

Nowadays, the value factor is a hot topic among practitioners and researchers as well. It is commonly known that equity factors have a cyclical performance, but many argue that value underperforms for too long. Therefore, many say that the classical HML value factor of Fama and French is dead. On the other hand, there is an emerging amount of research papers that study the value investing with an aim to make some alterations that would result in a profitable factor as the classic B/M ratio looks like it’s not a sensible value factor anymore. This branch of literature was recently enriched by novel research of Blitz and Hanauer (2020). By including more value metrics, altering the investment universe and applying basic risk management techniques, value strategy can become profitable in the long term. Although the modification is sensible, it stills suffer in a recent period. Only time will tell whether the novel resurrected value factors would emerge again as many times in the past…

Authors: David Blitz and Matthias X. Hanauer

Title: Resurrecting the Value Premium

Stock prices react to the new information that investors continually receive from many sources. There are some major events, which are commonly connected with a new piece of information and subsequent reactions of investors. For example, quarterly earnings-announcements are the cause of the post-earnings announcement drift or PEAD. According to the PEAD, prices tend to continue to drift up (down) after positive (negative) news. But news related to quarterly announcements is not the only important information. A novel research paper written by the Hong and Yu explores implications of the month-end reporting, analyst revisions and management guidance that are coming to market usually in the first half of each month and are also connected with drifts that offer practitioners profitable opportunities.

Authors: Claire Yurong Hong and Jialin Yu

Title: Month-End Reporting, Cash-Flow News, and Asset Pricing

Equity factors are not as straightforward as they may seem to be. There is an ongoing debate about their usability or expected return since they have a cyclical nature. Moreover, the modern trend of smart beta only fuels this debate. Novel research by Blitz and Hanauer examines the size factor and sheds some light on this elusive anomaly. The size seems to be weak as a stand-alone factor, but it’s far from useless. The academic paper suggests that the size factor can be an important addition to the other equity factors as it helps to unlock the full potential of the quality, value or momentum factors.

Authors: Blitz, David and Hanauer, Matthias Xaver

Title: Settling the Size Matter

The usage of alternative data is now a main-stream topic in investment management and algorithmic trading. So let’s together explore the textual analysis of 10-K & 10-Q filings and analyze how these datasets could be used as a profitable part of investment portfolios. We invite you to read this short summarization of the research. Full version can be found on the SSRN.

Earnings announcement days are really important dates in a usual yearly corporate routine. The stock market usually reacts sharply on earnings announcement news and stocks on average earn statistically significant return excess of the market over the short window centred around the announcements. But how does the movement of stocks look before earnings announcement? The recent research paper written by Gao, Hu, and Zhang analyzes price action before and after earnings announcement and shows that a majority of the announcement month premium is realized during the pre-announcement period. Stocks with higher levels of uncertainty (stocks are sorted based on their option implied volatilities) experience larger pre-announcement returns and more uncertainty resolution during the pre-announcement period…

Authors: Gao, Chao and Hu, Grace Xing and Zhang, Xiaoyan.

Title: Uncertainty Resolution Before Earnings Announcements