University of Twente Student Theses


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)
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