Earnings Forecasting in a Global Stock Selection Model and Efficient Portfolio Construction and Management

Posted: 22 Jan 2015

See all articles by John Guerard

John Guerard

McKinley Capital Management, LLC

Harry Markowitz

University of California at San Diego

Ganlin Xu

Guidedchoice.com

Date Written: August 20, 2014

Abstract

Stock selection models often use analysts’ expectations, momentum, and fundamental data. We found support for composite modeling using these sources of data for global stocks during 1997-2011. We found additional evidence to support the use of SunGard APT and Axioma multi-factor models for portfolio construction and risk control. Three levels of testing of stock selection and portfolio construction models were developed and estimated. We created portfolios for January 1997-December 2011. We report three conclusions: (1) analyst’s forecasts information has been rewarded by the global market from January 1997-December 2011; (2) analysts’ forecasts can be combined with reported fundamental data, such as earnings, book value, cash flow, and sales, and momentum in a stock selection model to identify mispriced securities; and (3) the portfolio returns of the multi-factor risk-controlled portfolios allow us to reject the null hypothesis for the data mining corrections test. The earnings forecasting variable dominates our composite model in terms of its impact on stock selection.

Keywords: Earnings Expectation, Momentum, Portfolio Construction

JEL Classification: G11, G12

Suggested Citation

Guerard, John and Markowitz, Harry and Xu, Ganlin, Earnings Forecasting in a Global Stock Selection Model and Efficient Portfolio Construction and Management (August 20, 2014). Available at SSRN: https://ssrn.com/abstract=2552972 or http://dx.doi.org/10.2139/ssrn.2552972

John Guerard (Contact Author)

McKinley Capital Management, LLC ( email )

3301 C St # 500
Anchorage, AK 99503
United States

Harry Markowitz

University of California at San Diego ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States
(858) 534-3383 (Phone)

Ganlin Xu

Guidedchoice.com ( email )

8910 University Center Lane
Suite 400
San Diego, CA
United States

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