The Impact of Spin and Tone on Stock Returns and Volatility : Evidence from Firm-Issued Earnings Announcements and the Related Press Coverage

This study empirically examines whether spin and tone affect contemporaneous stock returns and volatility. We examine spin and tone of earnings reports from two sources: companies' earnings press releases and the financial news coverage of those releases. Our definition of spin is based on companies' use of pro forma versus GAAP earnings, and our definition of tone is based on the frequency of positive and negative words. Using daily stock returns, we find that (a) spin significantly affects stock returns and volatility; and (b) positive tone increase returns, decreases volatility whereas negative tone decreases returns but increases volatility