analyst dispersion uncertainty
What it checks
When analysts strongly disagree about a company's earnings (wide high-low range vs the consensus), the stock tends to underperform.
Mechanism
Stocks with high dispersion in analyst EPS forecasts earn low future returns. The Miller (1977) optimist-holds mechanism plus short-sale frictions mean dispersion proxies disagreement; the optimist tail prices it up and the marginal trader sees risk. Short the high-dispersion bucket.
Signal rule
(eps_high - eps_low) / max(|eps_avg|, $0.10) >= 0.5 (or 1.0) AND eps_num_analysts >= 3 -> SHORT on T+1 of rising edge, hold 30/60/90d.
Data dependencies
daily_pricesAdjusted-close OHLCV for every US-listed ticker; primary price feed.
analyst_estimatesWorker data table — see services/worker schema.
Expected edge
- Paper alpha
- ~-9.5%/yr top dispersion decile (DMS 2002)
- Paper window
- T+1 to T+90d
Diether-Malloy-Scherbina 2002 reports ~-9.5%/yr in the top-dispersion decile of NYSE-AMEX-NASDAQ.
Related families
analyst forecast dispersionSentimentHigh analyst-forecast dispersion → asymmetric overpricing (short-sale constraints keep pessimists out). Short high-dispersion / long low-dispersion → 7-8% annualized.
analyst revision jumpSentimentSo & Wang (2023) JAR "News-Implied Analyst Revisions and Drift": a large overnight gap on day t that isn't preceded by an analyst revision is mispriced — the revision arrives around T+5 and the price continues to drift through it. Reported: Sharpe 1.5, 30-day drift, robust 2003-2022. v1 approximation flags gaps ≥3% with no earnings event in trailing 5d as "unrevised"; long on upside gaps, short on downside gaps, hold 21-63d.
transcript finbert qa dispersionText-NLPHuang-Wang-Yang (2023 CAR) "FinBERT: A Large Language Model for Extracting Information from Financial Text." FinBERT-tone outperforms Loughran-McDonald wordcount on every post-call drift measure tested (3-day CAR R² roughly doubles). Follow-up Chen et al. (2024 JFE) reports ~5% annualised L/S on the Q&A-dispersion sub-signal. Own-history z of per-call Q&A sentiment dispersion (stdev of per-sentence pos-neg score): short when z ≥ +1 (uncertainty), long when z ≤ −1 (confident answers).
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