Improving The Power Of Predicted Surprise With TRNA News Sentiment

The StarMine SmartEstimate and Predicted Surprise have long been reliable indicators for anticipating future analyst revisions and predicting the direction of actual surprises at report time. In this research note we use the Thomson Reuters News Analytics (TRNA) dataset to further that predictive ability. Filtering on Predicted Surprise, we analyzed the direction of future consensus revisions in reaction to significantly positive or negative news events. We found that the combination of trailing news sentiment and Predicted Surprise gives us a powerful tool to accurately predict the direction of both future consensus revisions and actual earnings surprises.

Our main findings are as follows:

• Combining news sentiment with Predicted Surprise significantly improves upon our ability to predict the direction of consensus revisions from either news sentiment or Predicted Surprise alone.

• The combination of Predicted Surprise and trailing news sentiment helps us accurately predict the direction of quarterly earnings actual surprises. The combination is more accurate than Predicted Surprise or trailing news sentiment alone.

• These findings are exploitable to create profitable trading strategies. In one such example, we implement a long/short strategy which achieves 14% annualized returns over a 10 year period.

Learn more – download our special report on TRNA News Sentiment today.

 
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