Predicting Market Direction from Direct Speech by Business Leaders

Abstract

Direct quotations from business leaders can communicate to the wider public the latent state of their organization as well as the beliefs of the organization's leaders. Candid quotes from business leaders can have dramatic effects upon the share price of their organization. For example, Gerald Ratner in 1991 stated that his company's products were crap and consequently his company (Ratners) lost in excess of 500 million pounds in market value. Information in quotes from business leaders can be used to make an estimation of the organization's immediate future financial prospects and therefore can form part of a trading strategy. This paper describes a contextual classification strategy to label direct quotes from business leaders contained in news stories. The quotes are labelled as either: 1. positive, 2. negative or 3. neutral. A trading strategy aggregates the quote classifications to issue a buy, sell or hold instruction. The quote based trading strategy is evaluated against trading strategies which are based upon whole news story classification on the NASDAQ market index. The evaluation shows a clear advantage for the quote classification strategy over the competing strategies.