What if we could find investment opportunities based on how people say things, as much as what they say?
The length and complexity of management earning call discussions could be a good indicator of future stock performance, as is the tone executives use on these calls, a new study shows.
This two-part study examines quarterly earnings calls to find natural language anomalies.
The first paper 'Conference call clarity' reveals examples of management discussions that carry on longer than may be necessary – long speeches that are complex and lacking in clarity could be designed to bamboozle investors, the study suggests.
The second paper 'Conference call tone' examines the tone of how things are said – good and bad news about the future prospects of a company can be inferred by measuring the linguistic tone of sentiment of speeches, the study shows.
The study finds correlations between language and future performance. It finds the clearest results in North American listed companies which have the most consistent disclosure requirements.
Assessing conference call transcripts for patterns relating to length and language clarity reveals useful negative signals on future stock price performance.
The study makes the case for using this kind of text-based data to assess sentiment via natural language processing, alongside other more traditional price and accounting-based data, to assess future company performance.
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