The Effect of “Soft Information” on Institutional Trading

UNIVERSITY OF TECHNOLOGY SYDNEY
Finance Department
Research Seminars in Finance

 

Russ Wermers

Topic: Who Listens to Corporate Conference Calls? The Effect of “Soft Information” on Institutional Trading

Speaker: Russ Wermers, University of Maryland

Abstract: Active investment management using fundamental techniques (as opposed to quantitative techniques) involves a comprehensive assessment of several public sources of corporate information—including “soft information” conveyed by company management. In this paper, we explore an important conduit for fundamental information flow—the presentation and discussion of soft information that occurs during corporate conference calls (e.g., earnings conference calls).  These calls represent a unique platform for the dissemination of information from corporate management to investment managers, as well as providing a regular opportunity for analysts to publicly challenge management’s dialogue about a company’s profitability outlook; that is, conference calls provide a very public venue through which stock analysts simultaneously interact, in large numbers, with firm management. Using textual analysis of a comprehensive database of transcribed U.S. corporate conference calls from 2006 to 2018, we find that institutional investors significantly react to the “tone” (sentiment) of calls in their trades of stocks. Institutions trade on the tone immediately, and up to four weeks after the call, and, thereafter, continue to trade on conference call-driven analyst recommendation revisions. The trade reaction of institutions to tone is more pronounced when the marginal value of information is higher, e.g., when information is released during the question section of a conference call, when information is released during earnings calls, and when the stock exhibits a higher degree of information asymmetry. Our paper suggests that conference calls are an important channel for stock price discovery in the post Reg-FD era.

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Moderator: Kristoffer Glover, University of Technology Sydney

Date: Wednesday, 24th March 2021
Time: 9-10 am (Australian Eastern Daylight Time)
Venue: This is on online Zoom webinar.

Seminar protocols:

  • The webinar will run for 45 minutes, followed by a 15 minute Q&A session.
  • There will be a moderator for each seminar event, who will facilitate communication and resolve any technical issues.
  • Participants can use the chat facility or raise their had to ask questions during the presentation. The moderator will then alert the speaker at the appropriate time and either ask the questions raised or unmute the participant so they can ask the question directly to the presenter.

Co-ordinator: Harry Scheule

Enquiries: Duncan Ford

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