Idiosyncratic Alpha From Earnings Distortion

Earnings Distortion = Reported Earnings - Core Earnings

Core Earnings: New Data & Evidence, a new paper in The Journal of Financial Economics, unequivocally proves that the market misses the impact of our unrivaled analysis of footnotes as captured in our proprietary measure of Core Earnings.

To enable you to easily monetize our novel factor, Earnings Distortion, we present multiple trading strategies with supporting documentation.

ExtractAlpha presents a long/short dollar-neutral strategy that generates impressive performance from 2015-2021:

  • 10.1% annualized return and Sharpe ratio of 1.44
  • 9.3% annualized return net of Fama-French 5 factors, momentum, short-term reversal, and 12 sectors.

Get more details here. Download the paper and fact sheet.


CloudQuant presents two strategies to monetize the alpha in Earnings Distortion:

  1. The dollar-neutral long-short portfolio returned 60% over 10 years with a Sharpe Ratio over the last five years of ~1.
  2. The long-only portfolio outperformed the S&P 500 index by an average of 4% per annum over 10 years and averaged 18.4% per annum.

Get more details here.


AltHub presents three strategies to monetize the alpha in Earnings Distortion:

  1. Earnings Distortion S&P 500 Smart Beta Portfolio: 10-yr annualized return of 13.9% vs 12.1% for the S&P 500 with a Sharpe Ratio of 0.97.
  2. Earnings Distortion ML Model S&P 500 Smart Beta Portfolio: 3-yr annualized return of 18.2% vs 13.7% for the S&P 500 with a Sharpe Ratio of 0.82.
  3. Truth Stocks (Companies without Earnings Distortion) Portfolios:
    1. S&P 500 Universe: 10-yr annualized return of 16.8% vs 12.8% for the S&P 500 with a Sharpe Ratio of 0.7.
    2. Russell 3000 Universe: 9.5-yr annualized return of 28.4% vs 12.6% for the S&P 500 with a Sharpe Ratio of 1.

Get more details here.