Linguistic tone and the small trader

Détails

ID Serval
serval:BIB_CD090BAD65F2
Type
Article: article d'un périodique ou d'un magazine.
Collection
Publications
Titre
Linguistic tone and the small trader
Périodique
Accounting, Organizations and Society
Auteur(s)
Baginski S.P., Demers E., Kausar A., Yu Y.J.
ISSN
0361-3682
Statut éditorial
Publié
Date de publication
07/2018
Peer-reviewed
Oui
Volume
68-69
Pages
21-37
Langue
anglais
Résumé
Management-issued linguistic tone is, on average, positively associated with future earnings and incrementally priced by the market. However, prior capital markets research also shows that linguistic tone is difficult to process, while lab-based findings establish that less sophisticated investors are more susceptible to the use of heuristics in their interpretation of tone. Taken together, these findings motivate us to examine whether investors disagree on the valuation implications of linguistic tone and whether small investors are subject to differential, and notably less efficient, trading in response to the linguistic tone in these corporate announcements. We measure “residual tone” (i.e., that portion of linguistic tone that is not associated with contemporaneous economic news or current valuation fundamentals) for a sample of publicly-released management forecasts. We find that abnormal trading volume is increasing in the residual tone of management forecasts after controlling for the price reaction to forecasts, suggesting that there is significant investor disagreement over the implication of this tone for firm value. Further tests show that the net buying behavior of small investors is positively associated with residual tone, while larger investors tend to sell on this signal. The negative relation between residual tone and future stock returns found in prior work on earnings announcements holds in our sample of management forecasts as well, implying that this differential buying behavior involves an economically significant wealth transfer from small to large investors. We show in an extended analysis that any success that might accrue to small investors from trading positions taken during the event period is decreasing in residual tone.
Mots-clé
Accounting, Information Systems and Management, Organizational Behavior and Human Resource Management, Sociology and Political Science
Création de la notice
24/07/2018 9:15
Dernière modification de la notice
21/08/2019 5:15
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