S&P Global Market Intelligence finds that CEOs who used buoyant language to describe revenue, earnings or profitability outperform counterparts.
Shares of companies with chief executives who make liberal use of positive words to describe financials during earnings conference calls outperform those at businesses with more reserved CEOs, sometimes by as much as 9% per year, S&P Global Market Intelligence found in a new study. They then compared the performance of long-short stock portfolios based on how frequently management used positive descriptors to characterize earnings results.
"Individual stock returns tend to be dominated by company-specific news and events and they tend to be ... very, very noisy: Apple, Tesla and so on, so forth," Zhao said a separate interview with CNBC. Of course, it isn't crazy to assume that management teams that mention "growth" and "expansion" may be in a better position to do so. That is to say, their company's financial performance in recent quarters may simply be healthy and therefore deserving of praise.
Good example of a framing bias that investors face
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