By incorporating confirmation dates at an earlier part of the earnings timeline, traders can have a preliminary look at how a company is performing, according to Christine Short, VP of Research at Wall Street Horizon.
According to Wall Street Horizon’s latest white paper: “The Earliest Indicator of Corporate Earnings: Using Confirmation Timing for Trading Signals”, there is valuable information to be gained by analyzing Confirmation Timing events and has seen that firms reporting earlier than usual exhibit positive abnormal returns.
Likewise, companies that confirm later than average typically exhibit negative abnormal returns.
“Discretionary investors, such as equity and options traders, will value this type of Corporate Body Language,” Short said.
“Quantitative investors can factor Confirmation Timing into their models when designing forward-looking efficient portfolios,” she added.
Academic research shows that Corporate Body Language matters when companies change a previously confirmed earnings date.
Firms that advance earnings dates outperform those that delayed expected earnings dates.
While earnings date revisions and earnings date outlier events are significant to investors, there are typically only a small number of these events each quarter.
Wall Street Horizon is now advancing its Corporate Body Language research with new intelligence into what earnings date has been confirmed and when, providing the most insight available into the full quarterly earnings window.
The paper explores how the timing of a confirmation date telegraphs information to the market – focusing on company implications when the date occurs outside of its typical range.
Introduced in 2020, Confirmed Date Factor is part of Wall Street Horizon’s earnings date revisions, which captures to what extent the newly confirmed earnings date conforms to a company’s history or represents a significant outlier, whether notably earlier or later dates than past behavior.
Released in 2022, Confirmation Timing uses historical data to project an expected confirmation date and the normal range that enables the identification of: Companies that have not yet confirmed an earnings date and are materially late compared to their historical trends/behaviors; Announced earnings dates in which the Confirmation Timing is materially earlier or later than the company’s historical average of the same quarter.
In the US, companies report earnings each quarter while many international companies report just twice a year.
Wall Street Horizon has collected and analyzed several years of US company earnings timing data.
“With that robust history, short-term traders can position themselves to reduce risk and enhance upside,” Short said.
“Discretionary traders seek to identify strategies that either cut losses short or use those that allow winning stocks to run. The Confirmation Timing product can do both,” she added.
Wall Street Horizon data highlights companies that confirm an earnings date earlier than usual, which is a bullish signal, and those that are late to confirm, which is a bearish cue, she explained.
“These data can be used in both the equity and options markets during earnings season when individual stocks can sink or surge,” she said.
For quantitative investors, macro factors such as beta, the small-cap premium, and favorable priceto-book ratios have lost their luster, said Short.
She said that once the public gets hold of an apparent method for abnormally strong risk-adjusted returns, the factors suddenly stop working.
She added that quantitative researchers constantly explore micro factors and single-stock characteristics.
“Earnings date Confirmation Timing is a powerful early explanatory factor that helps drive individual stock prices in the short and intermediate terms,” she said.
According to Short said that quantitative investors must also carefully manage risk.
“While upside returns are always welcome, protecting a portfolio during volatility is paramount,” she said.
“Avoiding positions in companies that confirm an earnings date later than its historical trend could be highly valuable during bear markets when volatility is amplified,” Short said.
