When Analysts are confused Price Volatility increases

With Earnings Season just right around the corner we looked for names where there is a high standard deviation in Analyst Estimates. Basically which Companies have analysts estimates all over the place. We then looked back over the last 4 years to see how those “confused” names performed and what happened to volatility over the three months from March 24rd. Aside from last year when there was only a 6% difference in volatility in quintile 5 (highest standard deviation) vs. quintile 1 (lowest standard deviation), quintile 5 volatility was 30% higher than quintile 1 volatility in the previous 3 years.

As you would expected with higher volatility, comes bigger return but positive and negative. Quintile 5, outperformed Quintile 1, three out of the last four years. However in 2012 it was down 16% relative to only 7% for quintile 1. Below I have attached the returns and volatility for the different quintiles.

Quintile Summary

For this season we have highlight names that have a large dispersion of Estimates. We screened for names that 1- five or more Analyst cover the Company. 2- Mkt-Cap above ¥100bn and current FY1 EPS divided by Standard Deviation is greater than 30%. For the ones with the largest standard deviation, they look to have had recently significant declines in EPS forecast over the last couple of months. In the attached file we have also included the historical number for each Company.

Please contact us for a copy of the screen


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