Equity · United States · stocks · Daily Free

Earnings Announcement Size-Sorted Short-Term Reversal Strategy

Academic paper

News-Driven Return Reversals: Liquidity Provision Ahead of Earnings News

AuthorsEric C. So; Sean Wang

Institute

Massachusetts Institute of Technology
Massachusetts Institute of Technology (MIT) - Sloan School of Management
Southern Methodist University

Paper linkhttps://papers.ssrn.com/sol3/papers.cfm?abstract_id=2275982

Strategy in a nutshell

The investment universe consists of stocks listed at NYSE, AMEX, and NASDAQ, whose daily price data are available at the CRSP database. Earnings-announcement dates are collected from Compustat. Firstly, the investor sorts stocks into quintiles based on firm size. Then he further sorts the stocks in the top quintile (the biggest) into quintiles based on their average returns in the 3-day window between t-4 and t-2, where t is the day of the earnings announcement. The investor goes long on the bottom quintile (past losers) and short on the top quintile (past winners) and holds the stocks during the 3-day window between t-1, t, and t+1. Stocks in the portfolios are weighted equally.

Economic rationale

In general, a reversal in the price of an asset occurs due to investors’ overreaction to asset-related news and the subsequent price correction. In this case, the most probable reason for the phenomenon, according to the authors, is the market makers’ aversion to inventory risks that tend to increase dramatically in the pre-announcement period. Consequently, the market makers demand higher compensation for providing liquidity due to higher risk and therefore raise prices, which are expected to reverse after the earnings announcement.

Entry & exit

Entry

Compute a 20-day z-score on each name in SPY, BIL. Enter when z ≤ -1 (stretched to the downside).

Exit

Exit when the z-score mean-reverts back to ≥ 0. Positions are not held through a full trend — only the snap-back.

Market data required

Needs at least 25 adjusted daily closes on SPY, BIL before the first signal is ready. ETF columns print on exchange sessions only. The lab loads Yahoo Finance via backtest.data.load_daily_prices.

Symbols

SPY, BIL

Frequency

Daily · Daily adjusted close; the strategy loop checks each session

History needed

≥ 25 trading days per symbol (about 2 months), plus a few extra bars so the first signal can fire.

Fields

Adjusted close (Yahoo auto_adjust)
Session date index

Credentials

None for paper and the onsite lab
Broker or exchange API keys only for live orders

APIs & providers

Quant Buffet Data API

The lab calls load_daily_prices for the ASSETS panel of adjusted closes, then caches CSV so backtests replay the same series.

Provider: backtest.data.load_daily_prices
Auth: None for paper / sandbox backtests
Endpoints: load_daily_prices(ASSETS, start="2000-01-01")

API / docs → /en/docs/data-api

Yahoo Finance via yfinance

US equities and ETFs, adjusted OHLCV, free for research (rate limits apply).

Provider: yfinance → Yahoo Finance
Auth: None for public history
Endpoints: Ticker.history / yf.download(auto_adjust=True)

API / docs → github.com/ranaroussi/yfinance

Onsite backtest IDE

Quant Buffet native backtest IDE

Edit and run Quant Buffet Python for Earnings Announcement Size-Sorted Short-Term Reversal Strategy in the browser. Results update live with equity, drawdown, and metrics charts. Allowed: backtest.data, backtest.engine, backtest.metrics, numpy, pandas. Define ASSETS and make_on_day(prices). Shortcut: Ctrl+Enter. API docs →

IDE · 44 lines

"""
Quant Buffet interactive lab — reversal-during-earnings-announcements
Allowed: backtest.data / backtest.engine / backtest.metrics, numpy, pandas.
Required: a module-level ASSETS list, and def make_on_day(prices) returning (on_day, ready)
"""
from __future__ import annotations

import numpy as np
import pandas as pd

from backtest.data import load_daily_prices
from backtest.engine import EngineConfig, PortfolioEngine
from backtest.metrics import compute_metrics

ASSETS = ['SPY', 'BIL']
LOOKBACK = 20
ENTRY_Z = -1.0
EXIT_Z = 0.0

def make_on_day(prices: pd.DataFrame):
    cols = [c for c in ASSETS if c in prices.columns]
    mu = prices[cols].rolling(LOOKBACK, min_periods=LOOKBACK).mean()
    sd = prices[cols].rolling(LOOKBACK, min_periods=LOOKBACK).std(ddof=0)
    z = (prices[cols] - mu) / sd.replace(0, np.nan)
    held = {s: False for s in cols}

    def on_day(engine: PortfolioEngine, dt: pd.Timestamp) -> None:
        long = []
        for s in cols:
            zv = z.at[dt, s]
            if pd.isna(zv):
                continue
            if not held[s] and zv <= ENTRY_Z:
                held[s] = True
            elif held[s] and zv >= EXIT_Z:
                held[s] = False
            if held[s]:
                long.append(s)
        w = {} if not long else {s: 1.0 / len(long) for s in long}
        engine.set_target_weights(dt, w)

    ready = z.dropna(how="all").index.min() if z.notna().any().any() else None
    return on_day, ready

"""
Quant Buffet interactive lab — reversal-during-earnings-announcements
Allowed: backtest.data / backtest.engine / backtest.metrics, numpy, pandas.
Required: a module-level ASSETS list, and def make_on_day(prices) returning (on_day, ready)
"""
from __future__ import annotations

import numpy as np
import pandas as pd

from backtest.data import load_daily_prices
from backtest.engine import EngineConfig, PortfolioEngine
from backtest.metrics import compute_metrics

ASSETS = ['SPY', 'BIL']
LOOKBACK = 20
ENTRY_Z = -1.0
EXIT_Z = 0.0

def make_on_day(prices: pd.DataFrame):
    cols = [c for c in ASSETS if c in prices.columns]
    mu = prices[cols].rolling(LOOKBACK, min_periods=LOOKBACK).mean()
    sd = prices[cols].rolling(LOOKBACK, min_periods=LOOKBACK).std(ddof=0)
    z = (prices[cols] - mu) / sd.replace(0, np.nan)
    held = {s: False for s in cols}

def on_day(engine: PortfolioEngine, dt: pd.Timestamp) -> None:
        long = []
        for s in cols:
            zv = z.at[dt, s]
            if pd.isna(zv):
                continue
            if not held[s] and zv <= ENTRY_Z:
                held[s] = True
            elif held[s] and zv >= EXIT_Z:
                held[s] = False
            if held[s]:
                long.append(s)
        w = {} if not long else {s: 1.0 / len(long) for s in long}
        engine.set_target_weights(dt, w)

ready = z.dropna(how="all").index.min() if z.notna().any().any() else None
    return on_day, ready

Quant Buffet syntax cheat sheet (copy / insert)

Paste these fragments into the editor. The sandbox rejects QuantConnect, os, and network libraries.

Required imports

Only these libraries are allowed in the sandbox.

from __future__ import annotations

import numpy as np
import pandas as pd

from backtest.data import load_daily_prices
from backtest.engine import EngineConfig, PortfolioEngine
from backtest.metrics import compute_metrics

ASSETS list (whitelisted ETFs)

Module-level list. Tickers must be in the Quant Buffet whitelist.

ASSETS = ["SPY", "QQQ", "TLT", "GLD", "BIL"]

make_on_day contract

Must return (on_day, ready). on_day calls engine.set_target_weights.

def make_on_day(prices: pd.DataFrame):
    cols = [c for c in ASSETS if c in prices.columns]
    sma = prices[cols].rolling(200, min_periods=200).mean()
    state = {"last": None}

    def on_day(engine: PortfolioEngine, dt: pd.Timestamp) -> None:
        if sma.loc[dt].isna().all():
            return
        key = (dt.year, dt.month)
        if state["last"] == key:
            return
        state["last"] = key
        long = [
            s for s in cols
            if pd.notna(prices.at[dt, s]) and pd.notna(sma.at[dt, s])
            and prices.at[dt, s] > sma.at[dt, s]
        ]
        weights = {} if not long else {s: 1.0 / len(long) for s in long}
        engine.set_target_weights(dt, weights)

    ready = sma.dropna(how="all").index.min() if sma.notna().any().any() else None
    return on_day, ready

Set target weights

Weights should sum to about 1.0. Empty dict = 100% cash.

engine.set_target_weights(dt, {"SPY": 0.60, "BIL": 0.40})

Live backtest performance

CAGR

1.44%

Sharpe

0.17

Max DD

-36.97%

Vol

14.04%

Sortino

0.26

Beta

0.55

Up days

51%

Run the backtest to populate charts.

Order records

Run the backtest to load every order fill alongside performance.

Export to your platform

Transform Quant Buffet lab code (ASSETS + make_on_day / PortfolioEngine) into native classes for a third-party IDE — then copy and paste.

Target platform

Run in: QuantConnect Cloud or LEAN CLI · QCAlgorithm with Equity securities and monthly rebalance.

Detected pattern: Mean reversionAssets: SPY, BIL

# Generated from Quant Buffet → QuantConnect LEAN
# Strategy: Earnings Announcement Size-Sorted Short-Term Reversal Strategy
# Detected pattern: Mean reversion
# Source uses Quant Buffet lab APIs (ASSETS + make_on_day / PortfolioEngine).
# Review fees, data, and risk before live trading — educational export only.

from AlgorithmImports import *


class QuantBuffetExport(QCAlgorithm):
    def Initialize(self):
        self.SetStartDate(2010, 1, 1)
        self.SetCash(100000)
        tickers = ["SPY", "BIL"]
        self.symbols = []
        for t in tickers:
            if "-" in t:  # crypto proxy e.g. BTC-USD
                self.symbols.append(self.AddCrypto(t.replace("-USD", ""), Resolution.Daily).Symbol)
            else:
                self.symbols.append(self.AddEquity(t, Resolution.Daily).Symbol)
        self.Schedule.On(
            self.DateRules.MonthStart(self.symbols[0]),
            self.TimeRules.AfterMarketOpen(self.symbols[0], 30),
            self.Rebalance,
        )
        # Logic: Buy when return z-score < -1 over 20 days.

    def Rebalance(self):
        import numpy as np
        picks = []
        for symbol in self.symbols:
            hist = self.History(symbol, 20 + 5, Resolution.Daily)
            if hist.empty: continue
            close = hist["close"]
            if hasattr(close, "unstack"):
                close = close.unstack(level=0).iloc[:, 0]
            rets = close.pct_change().dropna()
            if len(rets) < 20: continue
            window = rets.iloc[-20:]
            z = (window.iloc[-1] - window.mean()) / (window.std() or 1e-9)
            if z < -1:
                picks.append(symbol)
        w = 1.0 / len(picks) if picks else 0.0
        for symbol in self.symbols:
            self.SetHoldings(symbol, w if symbol in picks else 0.0)

Exported code uses the platform’s native classes and libraries. Install dependencies in your third-party IDE, then run. Validate before live trading.