Nowcasting and Returns Timing

Ajit Agrawal, Aanya Jeganathen*, Neeraj Sudhakar 

One of the key questions of great interest to the clients is how best to use the signals generated by AKAnomics revenue Nowcasting estimates, and in particular, whether to wait till the end of the quarter when the estimates have lower errors, or to use them early in the quarter before the rest of the market has caught up.  

Analysis of the forward returns associated with AKAnomics Nowcasting estimates that suggest a revenue beat or miss shows some expected and some unexpected findings. We find that the returns in the first month of the quarter are the highest, followed by lower but continued solid returns during the second month. However, the returns drop considerably during the third and final month of the quarter, which seems counterintuitive. 

What is encouraging is that the returns associated with the historical AKAnomics signals follow the same pattern as that associated with a revenue estimate with perfect foresight of the quarter and no errors (“perfect signal”). 

The highest returns during the first month are justified, since the quarterly earnings released by the companies act as catalysts for the stocks during this period. Beyond the first month, it is harder to fully explain the returns behavior. While it is difficult to be certain, we posit that the market participants get more efficient in their understanding of the economic gyrations in the quarter thus decreasing the incremental value associated with a “perfect signal” (knowledge of the company revenues) as the quarter progresses. 

*Aanya Jeganathan is a Summer Intern at AKAnomics Inc, and we thank her for her contributions. Aanya is a senior at Rutgers Prep High School in NJ.