Forecast-based Equity Investing

Motivation:
Financial analysts should provide new information to capital market participants. If so, they should be in informational leadership as compared to other market participants and public forecasts of a company's earnings per share (EPS) should contain information which is not completely reflected in stock prices.

This wikifolio systematically exploits potential informational advantages of equity analysts. It is based on consensus EPS forecasts and stock prices. The wikifolio buys stocks, if their actual returns fall substantially behind the corresponding forecasted stock returns.

Implementation:
Key to the strategy is the undervaluation indicator Q, which identifies especially undervalued stocks.

Interpretation of Q:
The bigger a stock's Q, the more is it considered as undervalued by financial analysts, and vice versa.

Wikifolio construction:
The wikifolio holds a long position in those stocks with the largest Q and a short position in the market portfolio to reduce systematic market risk. It is rebalanced on a monthly basis. The investment universe contains all US S&P 500 index members. The short position in the market is therefore realized by a short ETF on the S&P 500 index. mehr anzeigen