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Earning Calls- An Integral in the Stock Selection Process

know how data reports can help to improve earning calls of organizations
BY Jaspreet Kaur
Feature Writer, BusinessEx
Oct 12,2018

With the advent of Big Data, a large amount of information, which was earlier unorganized and piled up in corners, is now brought to immense use. Big Data has facilitated building ex-ante consumers behavioural patterns, market analysis and much more. These analytical reports and patterns help organizations in modelling or remodelling their product, and alter their marketing strategies. After seeing the speeding growth of organizations that have deployed data analytics, the stock market investors have also shown interest in the big data. Mainly, stock investors want to utilize big data in the stock selection process as the structured data, refined from unstructured data, will help to gauge stock valuation and later, in the final decision-making process.

Use of Big Data in the Capital Market

Once the seed is sown everyone is enjoying/having its fruits, similarly, in the capital market almost every integral component, from investors to brokers, is employing unstructured data to get market insights and predict stock inflation. As a result, an ignoramus amount of reports are generated on a daily basis which, in turn, gives out consequential information to the organizations.

Lately SP Global, a market intelligence company released a report wherein it emphasized the use of unstructured data in stock selection. In the report, the agency shared sentiment- and behavioural based alpha insights, which helped to assess earning calls better. The findings that are incorporated in the report are:

Sentiment-based signals: Firms whose executives and analysts exhibited the highest positivity in sentiment during earnings calls outperformed their counterparts by 4.14% annually with significance at the 1% level. Firms with the largest year-over-year positive sentiment change and firms with the strongest positive sentiment trend outperformed their respective counterparts by 3.07% and 3.96% annually with significance at the 1% level.

Behavioural-based signals: Firms whose executives provided the most transparency by using the simplest language and by presenting results with numbers outperformed their respective counterparts by 2.11% and 4.43% annually with significance at the 1% level.

(Source- SP Global)

Important Things to Know About Earning Calls

After reading the report, a few things can be inferred from the report, that is:

  1. Positivity yields better results

Earning calls are greatly important for companies as organizations deliberatively share their financial report with insiders as well as outsiders in the call. Positivity in these earning calls is essential as it draws more attention towards a particular company compared to its counterpart. Thus, company executives should make thoughtful and positive responses to the questions during Q A process.

  1. CEOs are important

During the earnings call, responses of CEO are considerably important as they give a companys outline and also help to approach investors. Thus, it is recommended being positive throughout the event as it will leave a good impression on outside bodies.

  1. Formulate a strategy

Beforehand planning helps to deal situations, regardless of how good or bad they are. Thus, companies should formulate a foolproof plan for running the earning calls seamlessly. The strategy should cover all topics in relation to the financial report, and should also prepare for unpredictable questions in advance.

Employ these ideas into the practice to make an earning call positive and smooth.

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