Speculative and Informative: Lessons from Market Reactions to Speculation Cues

Abstract

Speculative language in corporate disclosures can convey valuable information on firms’ fundamentals. We evaluate this idea by developing a measure for speculative statements based on sentences marked with the "weasel tag" on Wikipedia. In the 16-week test period after filing, greater use of speculative statements in 10-Ks predicts higher and non-reverting abnormal returns, more insider and informed buying, and higher news sentiment. These findings imply that managers' usage of speculative language in 10-Ks reflects voluntary disclosure of their private information about the positive prospects of events when market implications of the events are uncertain and thus have room for (re)interpretation.

Keywords: Textual Analysis, 10-K Filings, Wikipedia, Weasel Words, Speculative language, Market Reactions, Information Asymmetry, Informed Trading Activity, News Sentiment