How to Talk Down Your Stock Performance
41 Pages Posted: 8 Mar 2019 Last revised: 19 Jan 2021
Date Written: April 19, 2020
We process the natural language of verbal firm disclosures in order to study the use of context specific language or jargon and its impact on financial performance. We observe that, within the Q&A of earnings conference calls, managers use less jargon in responses to tougher questions, and after a quarter of bad economic success. Moreover, markets interpret the lack of precise information as a bad signal: we find lower cumulative abnormal returns and a higher implied volatility following earnings calls where managers use less jargon. These results support the argument that context specific language or jargon helps to efficiently and precisely transfer information.
Keywords: financial jargon, natural language processing, textual analysis, stock returns, implied volatility, information exchange, corporate disclosure, conference calls
JEL Classification: D82, G12, G14, G30
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