Unearthing Alpha in Financial Annual Reports

10 Pages Posted: 25 Jun 2020

See all articles by Vinayak Agarwal

Vinayak Agarwal

University of Delhi - Shaheed Sukhdev College of Business Studies

Date Written: May 31, 2020

Abstract

Annual Reports are the management’s way of communicating with the stakeholders of a company. It contains a plethora of information concerning the company’s historical performance for a definite period and the management’s expectations about the company’s missions, goals and future. The paper highlights that a systematic textual analysis of the annual reports to derive a sentiment coefficient can help to create an alpha-factor and make sustainable returns that are orthogonal to the market returns, A strategy of long-short equity portfolio has been advocated wherein the selection criteria is based upon the ranking of sentiment coefficient so derived from the annual reports. The results document sound evidence of an established link between the stock returns and sentiment derived from the textual analysis of such reports.

Keywords: Textual Analysis, Sentiment Analysis, Alpha Factor, Factor Investment

JEL Classification: C58, G11

Suggested Citation

Agarwal, Vinayak, Unearthing Alpha in Financial Annual Reports (May 31, 2020). Available at SSRN: https://ssrn.com/abstract=3614524 or http://dx.doi.org/10.2139/ssrn.3614524

Vinayak Agarwal (Contact Author)

University of Delhi - Shaheed Sukhdev College of Business Studies

Vivek Vihar
Delhi, 110098
India

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