More Than Words: Quantifying Language to Measure Firms' Fundamentals [pdf]
Journal of Finance, Journal of Finance, 63(3), pages 1437-1467, June 2008.

We examine whether a simple quantitative measure of language can be used to predict individual firms' accounting earnings and stock returns. Our three main findings are: (1) the fraction of negative words in firm-specific news stories forecasts low firm earnings; (2) for a brief period of time, firms' stock prices underreact to the information embedded in negative words; and (3) the earnings and return predictability from negative words is largest for the stories that focus on firms' fundamentals. Together these findings suggest that linguistic media content captures otherwise hard-to-quantify aspects of firms' fundamentals, which investors quickly incorporate in stock prices.