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A Fed Chair’s Word Is Worth a Thousand Trades

We map high-frequency bursts of trading activity in the futures market to specific statements in FOMC press conferences, by applying speech recognition techniques to video recordings of these communication events. Our analysis provides a microscopic view of market reactions to an important channel of central bank communication.

[This is very early work and no draft is available yet. In the spirit of a picture being worth a thousand words, this short video, based on a 20-second excerpt from the October, 30th 2019 press conference, is a good illustration of what we are after. A Fed Chair’s word can indeed trigger a thousand trades…]

Talking About Uncertainty

(with Alexander F. Wagner and Richard J. Zeckhauser)

CEOs conducting earnings conference calls display distinctive styles in their word choice. Some CEOs emphasize uncertainty by using qualifying words such as “approximately”, “probably”, and “maybe” more frequently than the fundamental uncertainty in their companies’ business activity would suggest. Others use such words less frequently. Analysts and the stock market respond more strongly to earnings news conveyed by low-uncertainty talkers, independent of actual business uncertainty. Past performance does not explain the style of a newly appointed CEO, but when a firm does appoint a low-uncertainty CEO, Tobin’s Q increases and analyst recommendations become more favorable. Overall, investors and analysts appear to value low-uncertainty talk.

Do News Agencies Help Clarify Corporate Disclosure

Many investors rely on financial news agencies for information about companies despite the fact that much of it can be obtained directly from the companies themselves. The key reason appears to be that companies write press releases strategically, emphasizing good news and trying to package bad news, while news agencies deliver the same information in a more balanced and transparent form. News agencies also provide additional information about companies with infrequent press releases. Through their actions, news agencies reduce information asymmetries in the market.