Using Natural Language Processing to Assess Text Usefulness to Readers: The Case of Conference Calls and Earnings Prediction

53 Pages Posted: 9 Jan 2018 Last revised: 17 Jan 2018

See all articles by Richard M. Frankel

Richard M. Frankel

Washington University in Saint Louis - Olin Business School

Jared N. Jennings

Washington University in St. Louis

Joshua A. Lee

University of Georgia

Date Written: January 17, 2017

Abstract

We examine whether support vector regressions (SVR), supervised LDA (sLDA), random forest regression trees (RF), and ‘tone’ extract narrative content from conference calls that correlates with useful information that a human reader would identify. We find that each narrative-content measure (along with a composite measure) explains a portion of analyst-forecast revisions for quarter q 1 issued after the conference call in quarter q. Correlation with analyst-forecast revisions improves when the composite measure adapts to context (positive/negative returns; high variance/low variance) and ignores sparse words. The correlation is comparable and incremental to that of financial signals (cash-flow changes, earnings surprises, and management forecasts), which suggests that the narrative content of conference calls as extracted by readers is economically significant. Our results suggest that models of narrative content have reasonable construct validity and that this validity is likely to be improved by further thought on the unique characteristics of text.

Keywords: Textual Analysis, Machine Learning, Disclosure, Conference Calls

JEL Classification: M40, M41

Suggested Citation

Frankel, Richard M. and Jennings, Jared N. and Lee, Joshua A., Using Natural Language Processing to Assess Text Usefulness to Readers: The Case of Conference Calls and Earnings Prediction (January 17, 2017). Available at SSRN: https://ssrn.com/abstract=3095754 or http://dx.doi.org/10.2139/ssrn.3095754

Richard M. Frankel (Contact Author)

Washington University in Saint Louis - Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Jared N. Jennings

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
United States

Joshua A. Lee

University of Georgia ( email )

Athens, GA
United States

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