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

  • Kuo-Tay Chen
  • Tsai-Jyh Chen
  • Ju-Chun Yen
Part of the Lecture Notes in Computer Science book series (LNCS, volume 5477)

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.

Keywords

Single-index model earnings prediction risk sentiment textual information 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2009

Authors and Affiliations

  • Kuo-Tay Chen
    • 1
  • Tsai-Jyh Chen
    • 2
  • Ju-Chun Yen
    • 1
  1. 1.Department of Accounting, College of ManagementNational Taiwan UniversityTaiwan
  2. 2.Department of Risk Management and InsuranceNational Chengchi UniversityTaiwan

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