February 7, 2022
The performance of traditional equity factor strategies have been rather disappointing
in recent years. In our latest research, we consider incorporating sentiment signals
from news, earnings call transcripts, and insider transactions to boost the
risk-adjusted returns, and revive factor performance.
In this whitepaper, we analyze how the performance of monthly-rebalanced equity factor
investing strategies can be significantly enhanced by incorporating real-time sentiment from
RavenPack’s news analytics and earnings transcripts datasets. We construct cross-sectional,
dollar-neutral long-short portfolios as our benchmarks for nine traditional style factors
based on the small, mid and large-cap U.S. stock universes over 2007-2021.
Tilting the weights of a monthly-rebalanced benchmark factor portfolio using
sentiment enhances strategy performance across all equity factors, while maintaining
stable portfolio turnovers.
Tilting towards earnings-related news sentiment increases Information Ratios for
yield (from -0.21 to 0.28) and investment factors (from 0.30 to 0.61), while
portfolio turnover marginally increases from 3.2% to 5.7% and from 4.2% to 6.4%,
Statistical significance tests confirm that sentiment-tilted factors meaningfully
outperform those with random tilts, indicating that the information contained in
news and transcripts adds considerable value in the signal construction process.
Get the Whitepaper to review the performance for each factor and our proposed models for
sentiment-tilted multifactor strategies.
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RavenPack Earnings Intelligence combines signals from separate sources augmented with sentiment and thematic analytics for a powerful alternative that removes the limits of isolated vendor data.
In our latest research paper, we focus specifically on European markets by sequentially overlaying three RavenPack Earnings Intelligence signals.
We consider incorporating sentiment signals from news, earnings call transcripts, and insider transactions to
boost the risk-adjusted returns, and revive factor performance.
We find stronger, more predictable market reactions when the words of company executives agree with their actions.
We explore the combination of earnings-related news and earnings call transcripts.
Incorporating Earnings Calls transcript data increases IR to 1.4 for US Mid/Large Caps and 2.3 for Small Caps.