Earnings Surprise Momentum

Earnings Surprise Momentum captures the continued directional movement of a security's price in the periods following earnings announcements where actual results deviate materially from consensus expectations. This signal exploits the empirical finding that markets exhibit post-earnings-announcement drift (PEAD), where price adjustment occurs gradually rather than instantaneously. In insider trading analysis, abnormal insider accumulation or disposition preceding an earnings surprise, combined with subsequent price momentum in the direction of the surprise, suggests informed positioning and validates the predictive content of insider transactions.

The scoring methodology typically normalizes the magnitude of earnings surprise against historical volatility and earnings volatility (standardized unexpected earnings, SUE), then correlates this with subsequent price momentum measured over rolling windows of 5 to 60 trading days. Insider transaction timing relative to earnings dates serves as a secondary validation layer, with early accumulation before upside surprises or early liquidation before downside surprises strengthening signal conviction. This multi-factor approach reduces noise and distinguishes genuine information leakage from coincidental timing.