Tips and Tells from Managers: How Analysts and the Market Read between the Lines of Conference Calls

64 Pages Posted: 2 Feb 2015

See all articles by Marina Druz

Marina Druz

Swiss Finance Institute; University of Lugano - Institute of Finance

Alexander F. Wagner

University of Zurich - Department of Banking and Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swiss Finance Institute

Richard J. Zeckhauser

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

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

Druz, Marina and Wagner, Alexander F. and Zeckhauser, Richard J., Tips and Tells from Managers: How Analysts and the Market Read between the Lines of Conference Calls (January 2015). CEPR Discussion Paper No. DP10364, Available at SSRN: https://ssrn.com/abstract=2559285

Marina Druz (Contact Author)

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

University of Lugano - Institute of Finance ( email )

Via Buffi 13
CH-6900 Lugano
Switzerland

Alexander F. Wagner

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 14
Zürich, 8032
Switzerland
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Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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1000 Brussels
Belgium

Swiss Finance Institute ( email )

Switzerland

HOME PAGE: http://www.alex-wagner.com

Richard J. Zeckhauser

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-495-1174 (Phone)
617-384-9340 (Fax)

National Bureau of Economic Research (NBER) ( email )

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617-495-1174 (Phone)
617-496-3783 (Fax)

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