Is it profitable to trade solely upon financial narratives? : portfolio creation based on textual analysis

• Main Author: Gouveia, Diogo António Evangelista
• Publication Date: 2024
• Format: Master thesis
• Language: eng
• Source: Repositórios Científicos de Acesso Aberto de Portugal (RCAAP)
• Download full: http://hdl.handle.net/10400.14/47555
• topic: Financial narrative; Textual analysis; Portfolio creation; Word count; Flesch score; Casual reasoning; Forward looking; Uncertainty; Net tone; Narrative financeira; Análise textual; Construção de portfólio

The research aims to understand if profitability can be achieved relying solely on textual analysis metrics, such as word count, Flesch score, Fog index, causal reasoning, forward-looking indicators, uncertainty, and net tone. The characteristics of financial narratives were examined across three different sections of the annual report, the entire document, the Chairman's and the CEO's statements. Ten portfolios for each characteristic were constructed with equal weighting of short and long positions, determined by the top and bottom performers identified within the narrative, based on the literature available. However, findings indicate that, based on the portfolio construction criteria, exclusive dependence on narrative measures is not a viable approach for achieving profitability and mostly leads to value erosion.