With a month of free European/UK data (thank you for the trial, Portfolio123) I’ve been playing with the backtests a little bit and factors in general. What I’ve noticed is sentiment factors seem to work really well with USA stocks but not so much with European/UK stocks. I’ve noticed the opposite with momentum whereby European/UK stocks seem to exhibit much stronger momentum performance.
Why is this? Has anyone else noticed or thought about this? Is this a result of the availability of the data and/or is it more of a general liquidity difference between geographic markets?
Any discussion or ideas would be insightful, especially in light of formulated strategies for different geographic markets.
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So FactSet sentiment data is not point in time. P123 has remedied that by introducing a lag—at one time at least.
I am not sure whether this is an answer to your question or not but this if from a FactSet white paper telling us about the problems with their data and trying to sell you a PIT version. Since it is FactSet’s white paper, any criticisms about their own data can probably be taken at face value I would think: FactSet White Paper
Of note, because of the time difference what data will and will not be included will differ between the US and Europe. It is in the link and is relatively complex. I will not try to distill it here. But FactSet makes a big deal about time-zones when trying to sell the PIT version.
For sure there are probably other reasons and this one may or may not be significant. But I would want to have this sorted out if I were using European data.
Call me OCD but I would want to know and would ask for some help if FactSet’s white paper did not make it clear to me.
Note also that Walter has already requested a P123 white paper on this topic in this post, which only documents that others may be as uncertain as I am about where or how this presents a problem (if in fact it does present a problem still): Ranking calculation only done once a week - #4 by WalterW
Jim
Just the fact that there are less analysts covering European stocks, particularly small European stocks, should make sentiment factors more noisy and provide less signal, no?
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So this is probably correct. But interestingly, in the US the stocks with the most analyst coverage are the ones where analyst coverage means the least i.e., the SP500.
And we have the theory at P123 that we can find good stocks because their value is not always generally know (so few analysts that are not widely followed and preferably not a Goldman Sachs analyst might be good a good thing).
Probably correct but I am not sure that I would stop thinking about this and think that it is solved. BTW, I think my post (above) is less likely to be the answer. I am not intending to be critical and I do not think I know the answer at this point. Pretty sure that I don’t actually.
Jim
Yes, I’ve often thought about the paradox of the analyst coverage in the US. My completely gut level hunch that any analyst who is covering a tiny, undercovered company are probably specialists that know the business and industry really well and provides a lot of value. The analysts for the widely known megacaps provide little value add since the informational advantage is almost non-existent. Also, they might be more mindful of career risk by not aligning with conventional wisdom and more prone to herding effects.
I really don’t know enough about the analysts covering European stocks to make any ventures on their competence or incentives.
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