Framing

62 Pages Posted: 9 Jul 2020

See all articles by Vineet Bhagwat

Vineet Bhagwat

George Washington University - Department of Finance

Sara Shirley

Middle Tennessee State University

Jeffrey Stark

Middle Tennessee State University

Date Written: June 16, 2020

Abstract

We examine the impact framing of information has on the ability of market participants to process information in an earnings conference call. Following conference calls’ use of greater linguistic framing, uncertainty is higher. We show that firms experience up to three months of higher total and idiosyncratic risk, greater trading activity, and lower excess returns. Framing impacts financial analysts as well, as we observe significantly larger analyst forecast errors during the subsequent quarter. Forecast characteristics such as the size of revisions, forecast dispersion, and analyst disagreement also increase with the use of framing. Consistent across our results, the impact of framing is significantly larger among firms that underperform earnings expectations and thus have an incentive to obfuscate negative information. Overall, our evidence is consistent with linguistic framing reducing the ability of financial markets to effectively evaluate the information of an earnings conference call.

Keywords: Information Processing, Conference Calls, Natural Language Processing, Financial Markets

JEL Classification: G00, G10, G12, G14

Suggested Citation

Bhagwat, Vineet and Shirley, Sara and Stark, Jeffrey, Framing (June 16, 2020). Available at SSRN: https://ssrn.com/abstract=3628514 or http://dx.doi.org/10.2139/ssrn.3628514

Vineet Bhagwat

George Washington University - Department of Finance ( email )

2023 G Street
Washington, DC 20052
United States

Sara Shirley

Middle Tennessee State University ( email )

Murfreesboro, TN 37132
United States

Jeffrey Stark (Contact Author)

Middle Tennessee State University ( email )

Murfreesboro, TN
United States

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