More Than Words: Quantifying Language to Measure Firms' Fundamentals
We examine whether a simple quantitative measure of language can be used to predict individual firms' accounting earnings and stock returns. Our three main findings are: (1) the fraction of negative words in firm-specific news stories forecasts low firm earnings; (2) firms' stock prices briefly underreact to the information embedded in negative words; and (3) the earnings and return predictability from negative words is largest for the stories that focus on fundamentals. Together these findings suggest that linguistic media content captures otherwise hard-to-quantify aspects of firms' fundamentals, which investors quickly incorporate into stock prices. Copyright (c) 2008 by The American Finance Association.
Year of publication: |
2008
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Authors: | TETLOCK, PAUL C. ; SAAR-TSECHANSKY, MAYTAL ; MACSKASSY, SOFUS |
Published in: |
Journal of Finance. - American Finance Association - AFA, ISSN 1540-6261. - Vol. 63.2008, 3, p. 1437-1467
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Publisher: |
American Finance Association - AFA |
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