More Than Words: Quantifying Language to Measure Firms’ Fundamentals

More Than Words: Quantifying Language to Measure Firms’ Fundamentals

  • PAUL C. TETLOCK
  • MAYTAL SAAR‐TSECHANSKY
  • SOFUS MACSKASSY

Article first published online: 9th May 2008 DOI: 10.1111/j.1540-6261.2008.01362.x

Abstract


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.

Sign in to access the full article.

Related articles


Front Matter

Article first published online: 9th May 2008 / DOI: 10.1111/j.1540-6261.2008.01345.x

Read Article

Attracting Attention: Cheap Managerial Talk and Costly Market Monitoring

  • ANDRES ALMAZAN
  • SANJAY BANERJI
  • ADOLFO DE MOTTA

Article first published online: 9th May 2008 / DOI: 10.1111/j.1540-6261.2008.01361.x

Read Article

Growth versus Margins: Destabilizing Consequences of Giving the Stock Market What It Wants

  • PHILIPPE AGHION
  • JEREMY C. STEIN

Article first published online: 9th May 2008 / DOI: 10.1111/j.1540-6261.2008.01351.x

Read Article

The Politics of Financial Development: Evidence from Trade Liberalization

  • MATIAS BRAUN
  • CLAUDIO RADDATZ

Article first published online: 9th May 2008 / DOI: 10.1111/j.1540-6261.2008.01363.x

Read Article

Volatility Information Trading in the Option Market

  • SOPHIE X. NI
  • JUN PAN
  • ALLEN M. POTESHMAN

Article first published online: 9th May 2008 / DOI: 10.1111/j.1540-6261.2008.01352.x

Read Article

Neighbors Matter: Causal Community Effects and Stock Market Participation

  • JEFFREY R. BROWN
  • ZORAN IVKOVIĆ
  • PAUL A. SMITH
  • SCOTT WEISBENNER

Article first published online: 9th May 2008 / DOI: 10.1111/j.1540-6261.2008.01364.x

Read Article

Are you an Author?


Please read our submission requirements and find out how to submit your paper to the Journal of Finance

Submit a paper