Word Power: A New Approach for Content Analysis

Abstract:     
We present a new approach for content analysis to quantify document tone. We find a significant relation between our measure of the tone of 10-Ks and market reaction for both negative and positive words. Previous research has not been successful in quantifying tone using positive words. We also find that the appropriate choice of term weighting in content analysis is at least as important as, and perhaps more important than, a complete and accurate compilation of the word list. Furthermore, we show that our approach circumvents the need to subjectively partition words into positive and negative word lists. Our approach reliably quantifies the tone of IPO prospectuses as well, and we find that the document score is negatively related to IPO underpricing.

Number of Pages in PDF File: 49

Keywords: Content analysis, 10-Ks, Filing date, term-weighting

JEL Classification: G10, G14

working papers series