Unexpected Government Receivables: TenderAlpha’s Investment Signal

TenderAlpha has utilized the database of forward-looking receivables between 2013 and 2019 derived from the information of payment cycle of each US federal contract and backtested multiple trading strategies that go long on firms with government receivables and short the rest of the market with variations of the weighting of stocks in the portfolios and the universe in which they are implemented. 

As a result, we came across an investment signal called the ‘unexpected government receivables’ (UGR) signal

By conducting an original study in order to discover the effect of new contract awards (surprise/additional government receivables) outside the receivables from already awarded contracts, we proved the UGR signal’s strength. 

TenderAlpha’s Forward-Looking Receivables feed provides exact government contracts receivables up for obligation by the US federal government for over 3000 ticker-mapped publicly-listed government suppliers

We backtested the trading strategies using the following steps:

We scaled the forward-looking government receivables for each stock at the end of each month by the stock’s market capitalization.

We extracted the unexpected component of receivables by subtracting the average forward-looking receivables for each firm over the past year and dividing by their standard deviation over the same period.

We tested the performance of our strategies by calculating their Sharpe ratios and estimating alphas with respect to various factor models controlling for market, size, value, momentum, profitability, and investment equity factors.

UGR Performance  

In all cases, the strategies performed extremely well and achieved annualized Sharpe ratios
between 0.77 and 1.27, a range that spans between double and just over triple the historical Sharpe ratio of the market portfolio of 0.35-0.40.

The strategies’ alphas were in all cases significant and ranged between 3.4% and 7.1% per year. 

The Evolution of the UGR Signal 

Following the turbulent 2020, we evolved the UGR signal concept by backtesting and discovering alternative signals which continued to perform exceptionally well during 2020.

The main improvement in the new signals was that instead of scaling by market capitalization, we scaled forward-looking government receivables by accounting variables retrieved from the stocks’ annual financial statements. 
This avoids incurring portfolio turnover from sharp swings in the market essentially unrelated to the stocks’ receivables. 

Additionally, due to the static nature of the scaling variables (annual accounting data is published only once a year), we only subtracted the mean scaled government receivables over the last year.

Given the UGR* signal, in each month the strategy took positions in Russell 1000 stocks with positive UGR* and shorts stocks with negative UGR*. 

The strategy took short positions in about 200 stocks on an average month and long positions in about 140 stocks on average.  

The average returns and alphas ranged between 43 and 52 basis points per month, with t-statistics exceeding 2.50 in all cases.


The UGR signal proves the usability of TenderAlpha’s Forward-Looking Contract Receivables Data Feed, demonstrating that success in public procurement can translate into a higher stock price for the contract awardees. 

The Feed also allows for the building of strong revenue predictions and monitoring the mid-term effect of any major contract, whilst enabling a wider quantitative analysis of publicly-listed companies engaged in federal procurement. 

Want to see how the Forward-Looking Receivables Feed works? Request a demo now! 


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