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Word power: A new approach for content analysis

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  • Jegadeesh, Narasimhan
  • Wu, Di

Abstract

We present a new approach for content analysis to quantify document tone. We find a significant relation between our measure of the tone of 10-Ks and market reaction for both negative and positive words. We also find that the appropriate choice of term weighting in content analysis is at least as important as, and perhaps more important than, a complete and accurate compilation of the word list. Furthermore, we show that our approach circumvents the need to subjectively partition words into positive and negative word lists. Our approach reliably quantifies the tone of IPO prospectuses as well, and we find that the document score is negatively related to IPO underpricing.

Suggested Citation

  • Jegadeesh, Narasimhan & Wu, Di, 2013. "Word power: A new approach for content analysis," Journal of Financial Economics, Elsevier, vol. 110(3), pages 712-729.
    • Handle: RePEc:eee:jfinec:v:110:y:2013:i:3:p:712-729
    DOI: 10.1016/j.jfineco.2013.08.018
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    References listed on IDEAS

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    2. Kathleen Weiss Hanley, 2010. "The Information Content of IPO Prospectuses," The Review of Financial Studies, Society for Financial Studies, vol. 23(7), pages 2821-2864, July.
    3. Paul C. Tetlock, 2007. "Giving Content to Investor Sentiment: The Role of Media in the Stock Market," Journal of Finance, American Finance Association, vol. 62(3), pages 1139-1168, June.
    4. repec:bla:jfinan:v:59:y:2004:i:3:p:1259-1294 is not listed on IDEAS
    5. Tim Loughran & Bill Mcdonald, 2011. "When Is a Liability Not a Liability? Textual Analysis, Dictionaries, and 10‐Ks," Journal of Finance, American Finance Association, vol. 66(1), pages 35-65, February.
    6. Rock, Kevin, 1986. "Why new issues are underpriced," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 187-212.
    7. Feng Li, 2010. "The Information Content of Forward‐Looking Statements in Corporate Filings—A Naïve Bayesian Machine Learning Approach," Journal of Accounting Research, Wiley Blackwell, vol. 48(5), pages 1049-1102, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Content analysis; Lexicons; Term weighting;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G19 - Financial Economics - - General Financial Markets - - - Other

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