Predicting Asset Price Movements With A High Degree Of

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Predicting asset price movements with a high degree of certainty is harder than ever in today’s dynamic environment which includes a greater focus on quantitative trading. The finance profession is no longer confined to well connected MBA candidates from Wharton claiming to have a knack for stock picking. Many of the best and brightest in physics and mathematics now hold high profile positions on Wall Street and are responsible for defining the mathematical models to unlock potential mispricing opportunities in the market. But given the increasing complexities and intricacies of the market, building an accurate model requires choosing a set of complementing factors which accurately explain and understand the pattern of security returns. …show more content…

In general, many models use some form of fundamental analysis to understand the relationship between price movement and underlying financials, such as earnings. But over time, the ubiquity of fundamental and sell side earnings estimates data means the alpha previously found in quantitative models now turns to beta. Building an effective alpha producing earnings powered model today requires an alternative data set. With this in mind we built the Estimize Signal, a multifactor model based on multiple layers of our proprietary crowdsourced earnings estimates. In constructing it we leveraged research from an earlier paper, “Generating Abnormal Returns Using CrowdSourced Earnings Forecasts from Estimize”, first published by our CEO, Leigh Drogen, and Head of Quant, Vinesh Jha, in 2014. The biggest factors used in construction of the Signal comprise a pre earnings component measuring the difference between Estimize and Wall Street as well as post earnings factors such as recent earnings surprises benchmarked against Estimize forecasts. It’s possible to trade both factors independently and generate above average returns but together it forms a highly powerful tool to generate superior alpha. Ultimately though, the signal aides funds in sizing positions and timing execution across the 2000+ U.S. stocks covered in the Estimize universe and not predicting the exact results of an earnings report or any price movement through print.

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