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Auditor Change Drift Short

Updated dailyData needs: mediumshort only

paper

2016

Source

#208 auditor_change_drift_short — Bills, Cunningham, Myers 2016 (JAR) — Auditor Changes and Audit Quality.

Citation only, paper link pending.

In plain terms

Companies that change auditors underperform by ~9% over the next year. Short the day after the 8-K Item 4.01 lands.

How it works

An 8-K Item 4.01 filing (Changes in Registrant's Certifying Accountant) predicts ~9% underperformance over the subsequent 12 months. The signal subsumes audit disagreement, fee pressure, fragmenting governance, and (worst-case) management losing confidence in the prior auditor. The new SEC 8-K item-level parser writes item_4_01_excerpt + new_auditor_name + old_auditor_name so the family can gate on whether the change is interpretable.

Live results

0 times picked on its own · 19 times inside a blend (17 beat the stock) · updated 2026-06-06

This strategy is a frequent ingredient in blends that combine a few strategies on one stock. It has contributed to 19 such blended picks (17 of which beat simply holding the stock). Picking it on its own is only one of the ways it shows up.

How its picks scored vs. buy & hold

Each pick is graded on a recent year it was never tuned on, against simply owning the same stock

Where its edge concentrates

Share of picks in each company-size group that beat buy & hold

How often it trades

Active vs. patient. Bars on the left mean it waits for rare setups; bars on the right mean it trades often

Return vs. buy & hold

How much each pick beat or trailed simply owning the stock over the test year (extreme microcap moves trimmed)

Loading substrate evidence…

Data dependencies

Daily prices
Adjusted-close OHLCV for every US-listed ticker; primary price feed.
SEC 8k events
Item-coded 8-K events (1.01 material agreements, 4.02 non-reliance, etc.).

Expected edge

Reported return: ~9% over 12 months
Tested over: T+1 to T+252d

~9% underperformance over 12 months (Bills-Cunningham-Myers 2016 JAR).

Related families

Item 402 Non RelianceCompany Events & Earnings

When a company files an 8-K Item 4.02 saying its old financials shouldn't be trusted, the stock drops 8-15% in 3 days.

SEC Comment Letter DriftFilings, Insiders & Ownership

When a company receives an SEC comment letter, it tends to underperform for ~12 months.

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