Practical Applications of Sales Dispersion: A Robust Factor to Consider to Achieve Alpha

In Sales Dispersion: A Robust Factor to Consider to Achieve Alpha, from the Spring 2021 issue of The Journal of Wealth Management, authors Andrew Cohen (of Old Dominion University) and Feng Dong (of Siena College) examine the benefits of using sales forecast dispersion for predicting future stock performance. They hypothesize that companies with lower sales dispersion use strategies to optimize production, inventory control, and distribution channels, which eventually leads to long-term profitability. The authors find that the lower the analyst sales dispersion, the bigger the forecasting edge and the higher the probability of generating significant alpha. They conclude that sales dispersion is significantly more robust in predicting future stock performance than earnings dispersion. TOPICS: Performance measurement, analysis of individual factors/risk premia, wealth management