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

56 Pages Posted: 17 Apr 2008 Last revised: 18 May 2008

See all articles by Shibley Sadique

Shibley Sadique

Monash University - Department of Accounting

Francis Haeuck In

Monash University - Department of Accounting; Financial Research Network (FIRN)

Madhu Veeraraghavan

T.A. PAI Management Institute, Finance Area

Abstract

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.

Keywords: Earnings press release, Spin in earnings information, Tone, Stock market reaction

JEL Classification: G11, G14, M41

Suggested Citation

Sadique, Shibley and In, Francis Haeuck and Veeraraghavan, Madhu, The Impact of Spin and Tone on Stock Returns and Volatility: Evidence from Firm-Issued Earnings Announcements and the Related Press Coverage. Available at SSRN: https://ssrn.com/abstract=1121231 or http://dx.doi.org/10.2139/ssrn.1121231

Shibley Sadique

Monash University - Department of Accounting ( email )

Building 11E
Clayton, Victoria 3800
Australia

Francis Haeuck In

Monash University - Department of Accounting ( email )

Building 11E
Clayton, Victoria 3800
Australia
+61 3 9905 1561 (Phone)
+61 3 9905 5475 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Madhu Veeraraghavan (Contact Author)

T.A. PAI Management Institute, Finance Area ( email )

Bangalore
Manipal, Karnataka 576104
India
+91-820-2701030 (Phone)

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