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Word Power: A New Approach for Content Analysis

50 Pages Posted: 18 Mar 2011 Last revised: 15 Jul 2013

Narasimhan Jegadeesh

Emory University - Department of Finance

Di (Andrew) Wu

University of Michigan, Stephen M. Ross School of Business

Date Written: July 1, 2013

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. 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.

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

JEL Classification: G10, G14

Suggested Citation

Jegadeesh, Narasimhan and Wu, Di (Andrew), Word Power: A New Approach for Content Analysis (July 1, 2013). Journal of Financial Economics (JFE), Forthcoming; AFA 2012 Chicago Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1787273 or http://dx.doi.org/10.2139/ssrn.1787273

Narasimhan Jegadeesh (Contact Author)

Emory University - Department of Finance ( email )

Atlanta, GA 30322-2710
United States

Di Wu

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

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