In other words, what may come across to the average listener as a bland and routine presentation or individual comment, can be exposed by the software as a warning of bad times for the company, or the converse, that a bonanza is on its way.
Furthermore, there is anecdotal evidence that analysts acknowledge the value of vocal cues and may deliberately build non-verbal and vocal cues into their forecasts.
One analyst revealed that that their hedge fund even invited FBI agents to teach them how to 'read' what managers are really saying, above and beyond the specific words used. Another analyst stated that they specifically look for these non-verbal cues to assess how realistic managers’ statements are.
On the other hand, deciphering vocal cues remains challenging. Retrieving useful information from vocal cues thus requires a sophisticated model that accounts, amongst other factors, for these granular and sequential vocal sound structures.
Rich in data
Accordingly, the Bochum research team has developed a suitably high-tech model for analysing recordings of earnings conference calls – an increasingly common form of firm disclosure associated with significant information content.
These calls are teleconferences or webcasts at which managers of public firms discuss, with analysts and investors, the firm’s financial results during a given quarter or fiscal year. The calls consist of a presentation part and a Q&A session.
The paper says: "Although earnings are one of firms’ most thoroughly studied financial numbers, predicting future earnings remains a challenge for both researchers and investment practitioners. Collectively, our results imply that managers’ vocal cues are important information signals of future earnings that investment practitioners currently fail to consider.”
Because earnings conference calls are usually recorded and readily accessible, they provide a resource that is rich in analysable voice cues.
Furthermore, such audio data has become increasingly available in recent years, providing an ever-richer basis for examining information in the context of out-of-sample predictions, that is, predictions made by a model from new or 'unseen' data – the latter meaning not used for training the model.
With sophisticated technology, it is possible to interpret the message way beyond the text itself, from the most subtle of voice cues. Furthermore, voice analysis can provide an extremely accurate interpretation.
Doron Reichmann, a post-doctoral researcher on the project, says: “In seeking value-relevant information, research has now progressed from analysing mere accounting numbers to interpreting nuanced physiological responses from managers.”
