Lately, we have been seeing some dramatic sell offs from earnings. NFLX earnings tanked the stock and they weren't all that bad. TSLA's most recent earnings caused just over a 100 point sell off and they were positive. TSLA and SNAP's earnings are coming up today/tomorrow and we see some sustained selling.
So this made me wonder, how do earnings really affect a large cap stock like FB and NFLX?
Thanks to the miracles of quant trading and being a statistics based trader, I can isolate my data based on earnings releases to see what actually happens to the stock upon earnings releases and run some tests to determine significance. I am doing this with FB.
Analysis:
Since FB's history, there have been a total of 117 earnings releases.
87 have been positive releases (74%); and
30 have been negative releases (26%).
What about price action?
Okay, before I give the results I have to briefly explain what I did here. I isolated earnings day to the day immediately before the earnings release, the day of the earnings release and the day immediately after earnings release. So, earnings releases constitute a 3 day period in the data, this is because I know as a trader that the day leading up to, the day of, and the day following tend to have some dramatic reactions in PA. So what I did was I subtracted the close price of these earnings days from the close price of the day immediately proceeding the earnings days.
As an example, if earnings were released on the 20th, then the 19th, 20th and 21st were all included as "earnings days" and their close price was subtracted from the 18th.
Okay, now on the to the results:
Of the positive earnings, the mean increase in price was 0.443. That means, on average, when there were positive results, FB closed an average of 0.44 cents higher on the earnings period.
Of the negative earnings, the average increase in price was -2.93 with a Standard Deviation of 17.25. Meaning the average price dropped by $2.93.
The chart below shows the degree of sell off by earning release date. Keep in mind, a NEGATIVE value means that the price INCREASED and a Positive value means that the price DROPPED:
Whether earnings were negative or positive correlated to whether it sold off were in fact statistically significant when analyized via paired sample T-test. However, these numbers may interest you:
Of the positive releases: 41% of the time there was actually a sell off and just over 58% had a marginal increase in price. The increase in price generally happened on the day AFTER the release.
Of the negative releases: 26% had a sell off and 73% did not have a sell off (This is interesting, right?).
Conclusion:
- Earnings do correlate to PA; however, these correlations are not predictable
- Negative earnings have resulted in a sell off 26% of the time
- Positive earnings have resulted in a sell off 41% of the time
That's it, leave your questions, comments and criticisms below!
Trade safe everyone!
So this made me wonder, how do earnings really affect a large cap stock like FB and NFLX?
Thanks to the miracles of quant trading and being a statistics based trader, I can isolate my data based on earnings releases to see what actually happens to the stock upon earnings releases and run some tests to determine significance. I am doing this with FB.
Analysis:
Since FB's history, there have been a total of 117 earnings releases.
87 have been positive releases (74%); and
30 have been negative releases (26%).
What about price action?
Okay, before I give the results I have to briefly explain what I did here. I isolated earnings day to the day immediately before the earnings release, the day of the earnings release and the day immediately after earnings release. So, earnings releases constitute a 3 day period in the data, this is because I know as a trader that the day leading up to, the day of, and the day following tend to have some dramatic reactions in PA. So what I did was I subtracted the close price of these earnings days from the close price of the day immediately proceeding the earnings days.
As an example, if earnings were released on the 20th, then the 19th, 20th and 21st were all included as "earnings days" and their close price was subtracted from the 18th.
Okay, now on the to the results:
Of the positive earnings, the mean increase in price was 0.443. That means, on average, when there were positive results, FB closed an average of 0.44 cents higher on the earnings period.
Of the negative earnings, the average increase in price was -2.93 with a Standard Deviation of 17.25. Meaning the average price dropped by $2.93.
The chart below shows the degree of sell off by earning release date. Keep in mind, a NEGATIVE value means that the price INCREASED and a Positive value means that the price DROPPED:
Whether earnings were negative or positive correlated to whether it sold off were in fact statistically significant when analyized via paired sample T-test. However, these numbers may interest you:
Of the positive releases: 41% of the time there was actually a sell off and just over 58% had a marginal increase in price. The increase in price generally happened on the day AFTER the release.
Of the negative releases: 26% had a sell off and 73% did not have a sell off (This is interesting, right?).
Conclusion:
- Earnings do correlate to PA; however, these correlations are not predictable
- Negative earnings have resulted in a sell off 26% of the time
- Positive earnings have resulted in a sell off 41% of the time
That's it, leave your questions, comments and criticisms below!
Trade safe everyone!
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