FinBERT—A Deep Learning Approach to Extracting Textual Information

56 Pages Posted: 27 Aug 2021

See all articles by Allen Huang

Allen Huang

Hong Kong University of Science and Technology - Department of Accounting

Hui Wang

Hong Kong University of Science and Technology

Yi Yang

HKUST Business School

Date Written: July 28, 2020

Abstract

In this paper, we develop FinBERT, a state-of-the-art deep learning algorithm that incorporates the contextual relations between words in the finance domain. First, using a researcher-labeled analyst report sample, we document that FinBERT significantly outperforms the Loughran and McDonald (LM) dictionary, the naïve Bayes, and Word2Vec in sentiment classification, primarily because of its ability to uncover sentiment in sentences that other algorithms mislabel as neutral. Next, we show that other approaches underestimate the textual informativeness of earnings conference calls by at least 32% compared with FinBERT. Our results also indicate that FinBERT’s greater accuracy is especially relevant when empirical tests may suffer from low power, such as with small samples. Last, textual sentiments summarized by FinBERT can better predict future earnings than the LM dictionary, especially after 2011, consistent with firms’ strategic disclosures reducing the information content of textual sentiments measured with LM dictionary. Our results have implications for academic researchers, investment professionals, and financial market regulators who want to extract insights from financial texts.

Keywords: Natural Language Processing; Machine Learning; Deep Learning; Textual Analysis; Sentiment Classification; Informativeness; Earnings Conference Call

JEL Classification: D83, G14, G30, M40, M41

Suggested Citation

Huang, Allen and Wang, Hui and Yang, Yi, FinBERT—A Deep Learning Approach to Extracting Textual Information (July 28, 2020). Available at SSRN: https://ssrn.com/abstract=3910214 or http://dx.doi.org/10.2139/ssrn.3910214

Allen Huang (Contact Author)

Hong Kong University of Science and Technology - Department of Accounting ( email )

LSK Business School Building
HKUST
Clear Water Bay, Kowloon
Hong Kong

HOME PAGE: http://www.AllenHuang.org

Hui Wang

Hong Kong University of Science and Technology ( email )

Clear Water Bay
Kowloon
Hong Kong

Yi Yang

HKUST Business School ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

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