Tips and Tells from Managers: How Analysts and the Market Read between the Lines of Conference Calls
64 Pages Posted: 2 Feb 2015
There are 3 versions of this paper
When Managers Change Their Tone, Analysts and Investors Change Their Tune
Tips and Tells from Managers: How Analysts and the Market Read between the Lines of Conference Calls
Date Written: January 2015
Abstract
Stock prices react significantly to the tone (negativity of words) managers use on earnings conference calls. This reaction reflects reasonably rational use of information. 'Tone surprise' -- the residual when negativity in managerial tone is regressed on the firm's recent economic performance and CEO fixed effects -- predicts future earnings and analyst uncertainty. Prices move more, as hypothesized, in firms where tone surprise predicts more strongly. Experienced analysts respond appropriately in revising their forecasts; inexperienced analysts overreact (underreact) to tone surprises in presentations (answers). Post-call price drift, like post-earnings announcement drift, suggests less-than-full-use of information embedded in managerial tone.
Keywords: analysts, conference calls, market efficiency, textual analysis
JEL Classification: G14, G24, G34
Suggested Citation: Suggested Citation