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Leveraging Textual Analyst Sentiment for Investment

Conference paper
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Part of the Lecture Notes in Business Information Processing book series (LNBIP, volume 401)

Abstract

We document that the sentiment conveyed in texts of reports written by financial analysts is informative about both contemporaneous and future stock prices. By setting up a portfolio trading strategy exploiting textual sentiment in analyst reports, we show that it is possible to generate average monthly factor-adjusted returns of 0.7%. In this context, we find that the past price target forecasting abilities of brokerage firms have a positive effect on the predictability of returns using sentiment portfolio strategies. Overall, our results demonstrate that analysts provide valuable information for interpreting and predicting stock price movements in their textual reports. In contrast to existing research that utilizes quantitative analyst information or analyzes textual analyst data with a focus on event studies, we stand out by conducting an analysis at the calendar-year level to leverage on qualitative analyst report content. Most importantly, our results demonstrate that the financial sector still offers untapped potential for the inclusion of qualitative information that can be relevant for both research and practice.

Keywords

Financial analysts Textual analysis Portfolio strategy 

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Copyright information

© Springer Nature Switzerland AG 2020

Authors and Affiliations

  1. 1.University of GoettingenGoettingenGermany
  2. 2.Goethe University FrankfurtFrankfurt am MainGermany

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