Re: possible trading strategy?
 

then do the opposite and short everything before earnings.

Re: possible trading strategy?
 

[ QUOTE ]
stock market goes up historically
companies go up after releasing their earnings historically
therefore, buy companies a day before they release their earnings and sell the next day. keep doing this over and over again and you should out perform the S+P? correct?

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Nope, because large firms love to wait for good earnings periods to allow them to dump a huge position with little/no slippage because all you earnings momentum players are jumping on board.

In short, there's people thinking the opposite to you with bigger positions, with technical thinking thats far beyond your comprehension. They're strategic, they have objectives, and they're ruthless. And they'll always exploit simple strategies like this one.

Re: possible trading strategy?
 

a stock i bought gave their earnings this morning. i was able to sell at 53.2, now its at 50.58 after an under performing report. is it possible to wake up every morning and short a stock based on its earning report before everyone else gets there?

there has to be some strategy in the stock market that makes you easy money if you have a big enough bankroll to offset fees.

Re: possible trading strategy?
 

[ QUOTE ]
a stock i bought gave their earnings this morning. i was able to sell at 53.2, now its at 50.58 after an under performing report. is it possible to wake up every morning and short a stock based on its earning report before everyone else gets there?


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Somebody has to buy for you to sell - it's not like there's some dummy standing there offering to buy stocks regardless of what happens to the earnings.

Re: possible trading strategy?
 

I'm sure that you could do something like this for companies in the S&P 500 because so many stocks are changing hands based on index funds that you can play against that with individual companies. (in fact I know some hedge funds do this but I don't know their exact schemes)

Re: possible trading strategy?
 

this worked for a while in the past. Wall St used to habitually underforecast earnings. In the late 90's when the internet came about, a bunch of sites rose up that gave extremely accurate earnings predictions. Owners of the sites later fessed up that all they were doing was taking wall st forecasts and revising them upwards X percent every time.

Long story short, no, you cant generate alpha by doing this strategy (and if you could in theory it would immediately go away)

Re: possible trading strategy?
 

[ QUOTE ]
a stock i bought gave their earnings this morning. i was able to sell at 53.2, now its at 50.58 after an under performing report. is it possible to wake up every morning and short a stock based on its earning report before everyone else gets there?

No. If you look at the futures market for the S&P for example...that trades overnight. The market opened down around 20 points this morning but the futures had already been trading down to that point since last night

there has to be some strategy in the stock market that makes you easy money if you have a big enough bankroll to offset fees.

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Re: possible trading strategy?
 

[ QUOTE ]
I'm sure that you could do something like this for companies in the S&P 500 because so many stocks are changing hands based on index funds that you can play against that with individual companies. (in fact I know some hedge funds do this but I don't know their exact schemes)

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Why do you think prices won't move immediately after something blatantly as obvious as earnings? Index funds are, as a rule, price takers and you can't play against that, unless you're a market maker and no one else is willing to make markets. The way to play this is stat arb, but everyone's doing that too. The only fundamental way to make money off earnings is by understanding the announcement better than others.

Re: possible trading strategy?
 

[ QUOTE ]
a stock i bought gave their earnings this morning. i was able to sell at 53.2, now its at 50.58 after an under performing report. is it possible to wake up every morning and short a stock based on its earning report before everyone else gets there?

there has to be some strategy in the stock market that makes you easy money if you have a big enough bankroll to offset fees.

[/ QUOTE ]

And what if a large player takes this opportunity in the morning to execute a large buy order, with a long term holding idea in mind? Unless you time your exit to perfect, all your profits will gone, and suddenly now the momentum players are getting involved, giving you a loss.

Re: possible trading strategy?
 

Something I read recently is somewhat related to this, and interested me a great deal. It's called the disposition effect - here's a link if you are as intrigued by group psych as I am. It describes investors' tendency to sell appreciated securities quicker and to hold onto losers longer, otherwise known as "get back to even-itis".

The original paper (which I am too lazy to find now) demonstrated an abnormal rate of return is achievable by buying stocks that have a positive earnings surprise and substantial pre-release appreciation. Conversely, they sold stocks after negative earnings surprise that have substantial pre-release depreciation.

Now, this study was done a while ago and extensively covered by the markets, so I expect most of it to not work very well anymore... but this is human psychology we're talking about, and there must be inefficiencies everywhere related to this phenomenon.

Anyone tailor a strategy around this, or a variation?

Oh, and if you have any other group psych related papers, send em over, these kinds of research papers I read for fun.