Predicting Future Earnings Change Using Numeric and Textual Information in Financial Reports

Authors:
Kuo-Tay Chen;Tsai-Jyh Chen;Ju-Chun Yen
Affiliations:
Department of Accounting, College of Management, National Taiwan University,;Department of Risk Management and Insurance, National Chengchi University,;Department of Accounting, College of Management, National Taiwan University,
Venue:
PAISI '09 Proceedings of the Pacific Asia Workshop on Intelligence and Security Informatics
Year:
2009

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Stock price movement prediction using representative prototypes of financial reports

ACM Transactions on Management Information Systems (TMIS)

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Abstract

The main propose of this study is to build a more powerful earning prediction model by incorporating risk information disclosed in the textual portion of financial reports. We adopt the single-index model developed by Weiss, Naik and Tsai as a foundation. However, other than the traditionally used numeric financial information, our model adds textual information about risk sentiment contained in financial reports. We believe such a model can reduce specification errors resulting from pre-assuming linear relationship, thus can predict future earnings more accurately. The empirical results show that the modified model does significantly improve the accuracy of earning prediction.