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Crowdsource Earnings Predictions and the Quantopian Research Platform
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Transcript of Crowdsource Earnings Predictions and the Quantopian Research Platform
Estimize and QuantopianCrowdsource Earnings Predictions and the
Research Platform
QuantopianSeong Lee (about)
What are we talking about?
● EPS, Wall Street Consensus, Earnings Surprise
● Estimize, the crowdsourced financials aggregator
● Cover Estimize’s whitepaper and replicate the results in the Quantopian Research Platform
● Develop a simple trading strategy
By the end of this talk you’ll have
● Tasted the potential for crowdsourced financial data
● A sense of how the Quantopian Research Platform works and how to run parameter optimization
What you need to know
● EPS: Earnings Per Share o (Net Income - Dividends)/(Shares Outstanding)o An important factor in predicting a company’s
performanceo I.E. Did it increase from last quarter?
What you need to know
● Wall Street Consensuso Aggregated consensus of Wall Street Analysts
(mostly sell-side)o Sell-side: Investment Banks, FAs, Brokerso Buy-side: Hedge funds, mutual funds, pension
funds, VCs, Prop firms, PEso IBES (Institutional Brokers’ Estimate System)
What you need to know
● Earnings Surpriseo When announcements do better than or worse than
earnings estimateso Look at Apple Q2:
Actual: 1.66 Consensus: 1.46 Surprise: 13.7%
Summary
● EPSo Earnings Per Share
● Wall Street Consensuso Average of all Wall Street Estimates
● Earnings Surpriseo When earnings announcements differ from
expectations
Who is Estimize?
● Estimize is a financial estimates aggregatoro “Independent, buy-side, and sell-side analysts as
well as private investors and students”o EPS and Revenue estimates side-by-side with Wall
Street Consensus estimates
Revisiting Apple Q2, 2014
Crowdsourced Estimates
● What makes them different?o Diversity of contributors
Only 7% of total participants are sell-side analysts
Looking at the whitepaper claims
● Released September 24, 2013● Claim #1: “More accurate 65% of the time
when there are 20 or more contributors”● Claim #2: “Average absolute error of the
Estimize consensus is smaller than the Wall Street Consensus by 12 bp when contributors are greater than 20”
The Toolbox
Claim #1: “65% more accurate”
● Did Estimize land higher than Wall Street when it was a positive surprise?
● Did Estimize land lower than Wall Street when it was a negative surprise?
Revisiting Apple Q2, 2014
Implementation
● Compare the number of times that Estimize correctly guessed direction
● Data was preprocessed so feel free to reach out if you want steps
Wrangling our DataFrame
● We have 13,000 rows, each with this data
● So for each row, see if estimize predicted direction correctly
Loading our Data
Prediction Direction
Plot the results
What about the number of participants?● Each announcement can have as little as 1
participants or more than 167
● Apple Q2, 2014:
Plotting against N participants
Plotting against N participants
Summary
● Positive correlation between number of participants and the accuracy rate of Estimize versus the Wall Street Consensus
● Accuracy > 65% when N > 20
Claim #2: Lower absolute error
● We’re going to look at the relative delta of each estimate instead
● Steps:1. Wrangle our DataFrame/spreadsheet (add a
column)2. Plot the results against N participants
Wrangling our data
Graphing the score: Code
Graphing the score: Plot
Conclusions
● Claim #1: Positive relationship between accuracy and number of participantso Matches up
● Claim #2: Lower relative error as number of participants increaseso Matches up
● So how do we use this data?
Implementing a trading strategy
● Goals:o Write a simple algorithm to backtest our strategyo Compare the Wall Street estimates versus Estimize
estimates in generating alphao Get a sneak-peak into the Quantopian Research
Platform
The strategy
● PEAD - Post Earnings Announcement Drifto “The tendency for a stock’s cumulative abnormal
returns to drift in the direction of an earnings surprise”
● Logic:o If there is a positive surprise (actual > estimate)
Buy and hold for 1 day o If there is a negative surprise (actual < estimate)
Sell and hold for 1 day
Implementation
● Same format as Quantopian IDE:
Steps
1. Create a universe of stocks from our dataa. Only where N >= 20
2. Setup our `initialize` and `handle_data` methods
3. Run the algorithm4. Optimize our parameters and choose the
best one
Creating a universe
Initialize
Handle_data: Main Logic
Run the algorithm
Optimize parameters: Brute Force
● Our parameters: ● Run a for loop over these parameters:
o ● Redefined initialize with new params:
Results
Results
● The strategy that held a position for 3 days using the Estimize estimates had cumulative returns of 4.97% from 10/12 - 1/14
● Try:o Long onlyo Short onlyo Longer holding periods
Final thoughts and Summary
● There are more efficient ways to optimizeo Gradient descent, Walk forward optimization,
Genetic algorithms● Easier plotting tools exist (Seaborn)● Crowdsourced estimate data can be
interesting new sources of alpha● Parameter optimization/research is possible
in the Quantopian Research Platform
Questions and Notes● Email us at [email protected]
o Ask us about the iPython notebook these slides were based off!
● Visit us at Quantopiano www.quantopian.com
● Estimize Whitepaper: http://com.estimize.public.s3.amazonaws.com/papers/Estimize%20Whitepaper%20Executive%20Summary.pdf
● Deutsche Bank Paper: http://blog.estimize.com/post/80676086439/deutsche-bank-quant-research-estimize-more-timely-and