Future Earnings Information in Business Text

55 Pages Posted: 12 Mar 2021

See all articles by Jeffrey Green

Jeffrey Green

University of Illinois at Urbana-Champaign - Department of Linguistics

Jeremiah Green

Texas A&M University - Department of Accounting

Antonis Kartapanis

Texas A&M University - Mays Business School

Date Written: January 8, 2021

Abstract

We show that measures of business text sentiment are highly affected by transitory events. These transitory events lead to a strong positive association between sentiment and contemporaneous earnings. However, the association between sentiment and future earnings is insignificant. We develop a quantification of business text that is less affected by transitory events and is therefore better suited for prediction. Applied to 10-K filings, our proposed measure is strongly associated with both contemporaneous and future earnings. Further, applied to earnings announcements, our measure is strongly associated with future returns. Other tests verify and confirm the value of our measurement approach.

Keywords: Textual analysis; Bag of words; Sentiment analysis; Information in business text

JEL Classification: D82, D83, G14, M40, M41

Suggested Citation

Green, Jeffrey and Green, Jeremiah and Kartapanis, Antonis, Future Earnings Information in Business Text (January 8, 2021). Available at SSRN: https://ssrn.com/abstract=3762794 or http://dx.doi.org/10.2139/ssrn.3762794

Jeffrey Green

University of Illinois at Urbana-Champaign - Department of Linguistics ( email )

4080 Foreign Languages Building
707 S Mathews Avenue, MC-168
Urbana, IL 61801
United States

Jeremiah Green

Texas A&M University - Department of Accounting ( email )

430 Wehner
College Station, TX 77843-4353
United States

Antonis Kartapanis (Contact Author)

Texas A&M University - Mays Business School ( email )

Wehner 401Q, MS 4353
College Station, TX 77843-4218
United States

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