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Effects of Annual Report Sentiment on Stock Returns
Borggreve, L.A. (2022) Effects of Annual Report Sentiment on Stock Returns.
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| Abstract: | This study utilizes natural language processing techniques to analyze annual report narratives. The sentiment of annual report narratives is gauged by utilizing the frequency of words related to a linguistic category to establish sentiment. This sentiment is used to predict abnormal stock returns. We find that the indicators ”positivity”, ”constraining”, and ”superfluous” can, in a model, predict abnormal stock returns. When combined with interaction effects deriving from cultural differences, these models show an even stronger predicting capability for abnormal stock returns. When considering only uni-dimensional models, we find that all of the sentiment indicators have significant effects on abnormal stock returns in the short-term. Among the earlier mentioned indicators, these are: ”readability”, ”uncertainty”, ”litigious”, and ”text density”. These conclusions are drawn after controlling for year- or country-specific trends. Consequently, investors and companies alike are advised to analyze the sentiment of annual reports, as the information included in them is likely to cause short-term adaptations in the stock price. |
| Item Type: | Essay (Master) |
| Faculty: | BMS: Behavioural, Management and Social Sciences |
| Subject: | 85 business administration, organizational science |
| Programme: | Business Administration MSc (60644) |
| Link to this item: | https://purl.utwente.nl/essays/90492 |
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