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Stock prices react significantly to the tone (negativity of words) managers use on earnings conference calls. This reaction reflects reasonably rational use of information. “Tone surprise” -- the residual when negativity in managerial tone is regressed on the firm’s recent economic performance and CEO fixed effects -- predicts future earnings and analyst uncertainty. Prices move more, as hypothesized, in firms where tone surprise predicts more strongly. Experienced analysts respond appropriately in revising their forecasts; inexperienced analysts overreact (underreact) to tone surprises in presentations (answers). Post-call price drift, like post-earnings announcement drift, suggests less-than-full-use of information embedded in managerial tone. Please note this paper has been updated and replaced by RWP16-004.


Druz, Marina, Alexander F. Wagner, and Richard Zeckhauser. "Tips and Tells from Managers: How Analysts and the Market Read Between the Lines of Conference Calls." HKS Faculty Research Working Paper Series RWP15-006, February 2015.