This is a strategy that aims to zero in on stocks where brokers are downgrading their earnings estimates. In theory, this is a short-selling strategy! The idea is that brokers have a behavioural bias which anchors their new estimates too closely to their previous estimates thus making a high likelihood that earnings estimates will continue to fall in future. Continuing earnings estimate downgrades can be negative for stock prices. However, research has shown that investing on the basis of broker recommendations does not generally work because of the bias in those recommendations. Research suggests that focusing on positive recent changes in broker recommendations may be more fruitful, particularly in combination with other signals, although this doesn't appear to be true for downgrades. You can read more here.
American born financial theorist and university professor.
Analyst Forecasts and the Cross Section of European Stock Returns
by Philipp McKnight and Steven Todd
Research on European stock by Todd & McKnightwork found that the positive returns realized on a earnings upgrade portfolio were large and persistent, whereas the sell portfolio generated a near zero return, i.e. the bad news was quickly priced in whereas the good news diffused slowly. This may be because conflicts of interest encourage analysts to report overly optimistic earnings, and investors, aware of these biases, respond by being cynical and adopting a “wait-and-see” approach when it comes to good news.
This screen is based on a UK dataset.
It uses the following criteria:
Results are sorted by:
And limited to the first 200 Results
| Timeframe | Screen Returns | FTSE 100 | Outperformance |
|---|---|---|---|
| 1 week | -3.17% | -0.41% | -2.8% |
| 1 month | -5.07% | -4.69% | -0.4% |
| 3 months | -11.59% | -1.74% | -9.9% |
| 6 months | 2.97% | 7.81% | -4.8% |
| 1 year | 5.11% | 16.34% | -11.2% |
| Since inception | 16.10% | 18.8% | -2.7% |
| Annualised | 10.38% |
| Maximum Drawdown | -25.93% |
| Average No. of Holdings | 24.6 |
| Diversification Level | Good |
Chart based on an equal weighted portfolio of max 25 stocks rebalanced quarterly. Qualifying shares below updated daily. Past performance not indicative of future returns.
Please note that 'short selling' strategies are designed to underperform the market - they are best used for hedging long portfolios rather than for absolute negative returns.
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