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I have a mixed opinion regarding the usefulness of the momentum indicator-"standardised unexpected earnings" and I'll explain why. If my logic will be incorrect please correct me so my mixed fillings can disappear. So the logic behind this indicator is the following - "The principle is that the smaller (larger) the historical size of forecast errors, the more (less) meaningful a given size of EPS forecast error." Where I see the problem is that standard deviation of past periods earnings surprises, in my opinion, doesn't show the historical errors of forecast(which is difference between actual EPS and forecasted EPS of past periods), rather, the standard deviation is the measure of variance around the mean value of those forecast errors. If, for example, current earnings surprise is equal to 0.05 and during past 20 years earnings surprise per share has been on average, say, 0.1 and variance around this mean was very law (for example 0.969 was one period's earnings surprise, 0.988 was another's and 0.953 and so on) this means that average forecast error(which is logically illustrated by mean earnings surprise) was relatively high compared to current earnings surprise (0.1 vs 0.05) and therefore, in reality, compared to historical results the earnings surprise is not so meaningful. So the problem with this indicator that I see is that measuring meaningfulness of current earnings surprise by dividing it by past earnings surprises' standard deviation logically, for me, makes less sense, because standard deviation of historical earnings surprise, in my opinion, doesn't show the historical size of earnings forecast errors(which is in my opinion shown by historical mean earnings surprise). Please comment if you agree to this logic, or even better please explain to me if my logic is wrong.
Hello Prof, thank you for your very useful material. I only want to signal an error at 01:01:20, in the weighted harmonics mean P/E. The correct result is 15.38. The weight is bigger for stock A which has a smaller P/E than stock B, so the weighted harmonics mean P/E should be smaller than the non-weighted harmonics mean P/E.
Good luctuer
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Great videos
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you are so awesome!
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Your videos have really helped me Proff. Thank You very much
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Thank you!!
Thank you very much. I have an exam tomorrow and I didn't know what to do. You are my saviour
I have a mixed opinion regarding the usefulness of the momentum indicator-"standardised unexpected earnings" and I'll explain why. If my logic will be incorrect please correct me so my mixed fillings can disappear. So the logic behind this indicator is the following - "The principle is that the smaller (larger) the historical size of forecast errors, the more (less) meaningful a given size of EPS forecast error."
Where I see the problem is that standard deviation of past periods earnings surprises, in my opinion, doesn't show the historical errors of forecast(which is difference between actual EPS and forecasted EPS of past periods), rather, the standard deviation is the measure of variance around the mean value of those forecast errors. If, for example, current earnings surprise is equal to 0.05 and during past 20 years earnings surprise per share has been on average, say, 0.1 and variance around this mean was very law (for example 0.969 was one period's earnings surprise, 0.988 was another's and 0.953 and so on) this means that average forecast error(which is logically illustrated by mean earnings surprise) was relatively high compared to current earnings surprise (0.1 vs 0.05) and therefore, in reality, compared to historical results the earnings surprise is not so meaningful.
So the problem with this indicator that I see is that measuring meaningfulness of current earnings surprise by dividing it by past earnings surprises' standard deviation logically, for me, makes less sense, because standard deviation of historical earnings surprise, in my opinion, doesn't show the historical size of earnings forecast errors(which is in my opinion shown by historical mean earnings surprise).
Please comment if you agree to this logic, or even better please explain to me if my logic is wrong.
Thank you very much. but why do we need to add back all items to get Core earning?
Hello Prof, thank you for your very useful material. I only want to signal an error at 01:01:20, in the weighted harmonics mean P/E. The correct result is 15.38. The weight is bigger for stock A which has a smaller P/E than stock B, so the weighted harmonics mean P/E should be smaller than the non-weighted harmonics mean P/E.
I assume the P/E numbers are rounded in the example, otherwise the harmonic mean as well is not correct as it should be around 15.49
10:56 why do we need to compare the P/E ratio if we already have prices?
Good luctuer