Earnings performance and indicators are one of the most looked at metrics within the finance community when choosing to invest in a security. Paired with earnings announcements are a conference calls where management comments on the company’s performance in a prepared statement. Afterwards investors can ask questions about specific components of the company and its outlook. This section is where you can gauge the finance community’s thoughts on a security based on the tone of conversation and the language used.
SMA converts Earnings Call Transcripts to JSON format and applies proprietary sentiment metrics. We calculate sentiment, word count, and section metrics from the Q&A section of the Earnings Call Transcripts to see relationships with subsequent price returns.
Since Earnings Calls typically occur 4 times in a calendar year for each company, this analysis uses quarterly holding periods. Portfolios are determined by the value of sentiment and word count metrics associated with the company’s Earnings Call Q&A section. At the end of each month, we look at any new Earnings Call Transcripts submitted in the past month and rebalance the portfolios. Sentiment and word count values can be held for a company for up to 4 months or until a new Earnings Call occurs. Portfolios are quintiles with Quintile 5 being the highest 20% of the metric and Quintile 1 being the lowest 20%. Each portfolio is rebalanced at market close of the last trading day of each month. Securities must have a Price > $5 to be included in the portfolio to remove volatility in returns from penny stocks.The first metric is Sum Sentiment. SMA looks at every word and phrase for sentiment and has a score when identified. We take the total sum of all the sentiment from the words and phrases in the Q&A section. We expect companies that have a higher Sum Sentiment to outperform the market while companies with lower Sum Sentiment underperform
