The Analysts’ Tone & Questions Matter

Aug 29, 2012
J. Webster
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Rather than actually listen to the whole conference call, investors can now just gauge the tone of the analysts on the call and listen for what types of questions they ask. You’ll end up learning more about what direction the stocks is going than spending hours digging into the stocks financial statements or trying to figure out if that’s a head or shoulder in the stock chart. Well, at least that’s what Jordan Schoenfeld, a PhD candidate at the University of Michigan’s Ross School of Business, found out:

He found that when analysts’ tone is more upbeat than usual, a company is likely to see more analyst upgrades than downgrades, and even then to match or clear estimates when it next reports results. Most importantly, its share price tends to outperform in the days and months that follow. The upshot: Collectively, analysts may actually be quicker than investors to sense when something has shifted.

Meanwhile, Mr. Schoenfeld is forging ahead with research into when what analysts say matters. One nugget: “If analysts are asking about accounting—balance sheets, income statements, cash flows—that’s a very bad thing,” he says. (WSJ)

I’m guessing there might be a few hedge funds who’d like to hire Jordan Schoenfeld. I can see the new hedge fund names already, “Tone Billions & Harmony”, or maybe just a simple, “Tone Hedge”.

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