Earnings News and Prices (PEAD origin)
NO EDGEAnnual earnings news moves prices in its direction: good-news firms earned positive abnormal returns and bad-news firms negative ones. Most of the move came before the announcement month; a smaller continuation afterwards was the first hint of PEAD.
| THE STRATEGY | $SPX BUY & HOLD | |
|---|---|---|
| Growth a year (CAGR) | -2.3% | 12.6% |
| Return per unit of risk (Sharpe) | -0.03 | 0.90 |
| Worst fall (max drawdown) | -61.2% | -24.8% |
// GROWTH OF $1, LOG SCALE
Tested on years it never saw (from the split): -1.4% a year against 12.4% for the benchmark; Sharpe -0.21 in the training years, 0.03 after.
After 25 bps of trading costs: -7.3% a year. WITHIN RANDOM
// DECADE BY DECADE
| ERA | STRATEGY | BENCHMARK |
|---|---|---|
| 2010s | -1.9% | 11.6% |
| 2020s | -3.0% | 14.1% |
// THE IDEA, AS PUBLISHED
Ball & Brown (1968), Journal of Accounting Research · 1968
- Classify each annual report as good or bad news by the sign of unexpected earnings from a naive time-series model
- Track monthly abnormal returns from 11 months before to 6 months after the announcement month
A real computation on the QuantGPT warehouse, survivorship-free, walk-forward. Gross returns, no costs except where stated. Past performance is not a promise. Findings, not advice. COMPUTED 2026-09-24 19:41 ON THE QUANTGPT WAREHOUSE: EVERY DELISTED NAME KEPT, FUNDAMENTALS AS FILED. NOT INVESTMENT ADVICE.