Earnings stories in the Wall Street Journal that provide more analysis help investors make better decisions about whether to invest in the company’s stock, according to research at the MIT Sloan School of Management.
Earnings articles with more analysis increase trading volume and improve “price discovery at earnings announcements.” The research found that earnings stories that have a high proportion of words similar to those used in a company’s earnings release are less helpful to investors.
The study examined Journal earnings stories of companies in the S&P 500 from 2004 through 2015 and was conducted by Nicholas Guest, a Ph.D. student in accounting.
“Media analysis also enhances investors’ trading decisions by improving their understanding of the implications of firms’ earnings news,” writes Guest, who provided a copy of his research to Talking Biz News.
“In other words, journalists’ analysis efforts provide value to readers, which helps explain the continued production of costly earnings-related analysis amid increasing pressure from low-cost information sources.”
The research is timely for business journalism. The Associated Press recently began producing more than 3,000 earnings stories each quarter using software from a company called Automated Insights.
However, Quant Media founder Max Frumes wrote earlier this month that such software often misses the news in earnings releases.