Textual Analysis in Finance

Posted: 10 Dec 2020

See all articles by Tim Loughran

Tim Loughran

University of Notre Dame

Bill McDonald

University of Notre Dame - Mendoza College of Business - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: November 1, 2020


Textual analysis, implemented at scale, has become an important addition to the methodological toolbox of finance. In this review, given the proliferation of papers now using this method, we first provide an updated survey of the literature while focusing on a few broad topics—social media, political bias, and detecting fraud. We do not attempt to survey the various statistical methods and instead initially focus on the construction and use of lexicons in finance. We then center the discussion on readability as an attribute frequently incorporated in contemporaneous research, arguing that its use begs the question of what we are measuring. Finally, we discuss how the literature might build on the intent of measuring readability to measure something more appropriate and more broadly relevant—complexity.

Suggested Citation

Loughran, Tim and McDonald, Bill, Textual Analysis in Finance (November 1, 2020). Annual Review of Financial Economics, Vol. 12, pp. 357-375, 2020, Available at SSRN: https://ssrn.com/abstract=3744667 or http://dx.doi.org/10.1146/annurev-financial-012820-032249

Tim Loughran (Contact Author)

University of Notre Dame ( email )

Department of Finance
245 Mendoza College of Business
Notre Dame, IN 46556-5646
United States
574-631-8432 (Phone)
574-631-5255 (Fax)

Bill McDonald

University of Notre Dame - Mendoza College of Business - Department of Finance ( email )

University of Notre Dame
Notre Dame, IN 46556-0399
United States
574-274-2333 (Phone)

HOME PAGE: http://sites.nd.edu/bill-mcdonald

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