Daily Academic Alpha: Crowdsourced Alpha?

Daily Academic Alpha: Crowdsourced Alpha?

March 26, 2015 Uncategorized
Print Friendly
(Last Updated On: January 18, 2017)

The Value of Crowdsourced Earnings Forecasts

Crowdsourcing — when a task normally performed by employees is outsourced to a large network of people via an open call — is making inroads into the investment research industry. We shed light on this new phenomenon by examining the value of crowdsourced earnings forecasts. Our sample includes 51,012 forecasts provided by Estimize, an open platform that solicits and reports forecasts from over 3,000 contributors. We find substantial accuracy benefits from combining IBES and Estimize forecasts at all horizons. These benefits are robust to controlling for difference in forecast horizon and forecast bias. Also, the Estimize consensus is a better proxy for the market expectation than the IBES consensus. Finally, Estimize consensus revisions generate significant two-day size-adjusted returns. The combined evidence suggests that crowdsourced forecasts are a useful, supplementary source of information in capital markets.

Crowdsourcing Forecasts: competition for sell-side analysts?

Recent research has begun to question the importance of forecasts to sell-side analysts. Prior research established the co-existence of longer horizon optimism and short-term pessimism in sell-side forecasts. These factors motivate us to explore a new phenomenon – crowdsourcing, as an alternative source of forecasts. We obtain revenue and earnings forecasts from estimize, an entity which crowdsources and distributes these forecasts online. We find the estimize forecasts are, on average, as accurate as the sell-side. Further, although our results show the estimize forecasts to be relatively more optimistic, on average, and particularly in short horizons, our analysis suggest it is at least partially explained by the extreme pessimism of the sell-side’s final forecasts. Our market test confirms support for the superiority of estimize’s short-term forecasts. Our results provide support for the value of crowdsourced forecasts.


Note: This site provides no information on our value investing ETFs or our momentum investing ETFs. Please refer to this site.


Join thousands of other readers and subscribe to our blog.


Please remember that past performance is not an indicator of future results. Please read our full disclaimer. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Alpha Architect, its affiliates or its employees. This material has been provided to you solely for information and educational purposes and does not constitute an offer or solicitation of an offer or any advice or recommendation to purchase any securities or other financial instruments and may not be construed as such. The factual information set forth herein has been obtained or derived from sources believed by the author and Alpha Architect to be reliable but it is not necessarily all-inclusive and is not guaranteed as to its accuracy and is not to be regarded as a representation or warranty, express or implied, as to the information’s accuracy or completeness, nor should the attached information serve as the basis of any investment decision. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission from Alpha Architect.


Definitions of common statistics used in our analysis are available here (towards the bottom)




About the Author

Wesley R. Gray, Ph.D.

After serving as a Captain in the United States Marine Corps, Dr. Gray received a PhD, and was a finance professor at Drexel University. Dr. Gray’s interest in entrepreneurship and behavioral finance led him to found Alpha Architect. Dr. Gray has published three books: EMBEDDED: A Marine Corps Adviser Inside the Iraqi Army, QUANTITATIVE VALUE: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors, and DIY FINANCIAL ADVISOR: A Simple Solution to Build and Protect Your Wealth. His numerous published works has been highlighted on CBNC, CNN, NPR, Motley Fool, WSJ Market Watch, CFA Institute, Institutional Investor, and CBS News. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago and graduated magna cum laude with a BS from The Wharton School of the University of Pennsylvania.