TonalityTech study confirms that the tone and readibility in announcements impact investors’ stock valuations TonalityTech GmbH | Highlights of TonalityTech’s validation study | May 2016

Purpose of the study

TonalityTech conducted a study in Q1 2016 to gauge the sentiment response of

finance professionals to stock-market announcements. The study measures how

changes of the readability and tonality in a stock-market announcement impact

the valuation decision of analysts and investors. Hence, the main purpose of the

study is to back-test TonalityTech’s big data algorithm that analyses how investors

perceive language.

Results of the study

Overall, the results of our study provide strong evidence that analysts and investors

provide a more positive ‘Buy/Sell’ recommendation in response to tonality- and

readability-altered stock-market announcements.

In our survey, we find that a statistically significant 76 percent of finance

professionals prefer our tonality-altered stock-market announcement over the

original disclosure (cf. figure 1). This finding is even stronger in the case of negative

news. 82 percent of the participants put a stronger ‘Sell’ recommendation on the

original disclosure and only 18 percent on the tonality-altered news. For positive

news, the affirmation rate for our tonality-altered news is at 58 percent. This

confirms our algorithmic research that the effect of tonality is stronger in the

context of negative news as compared to positive messages.

Our findings are also consistent for the sub-sample of buy- and sell-side analysts

with an affirmation rate of 82 percent for tonality-altered negative news and 62

percent of tonality-altered positive news.

In addition, 85 percent of the respondents rate our readability-altered disclosures

as easier to read.

Sponsored by

Figure 1: Summary of the TonalityTech validation study

Study design

In our study, we provide finance professionals with 8 pairs of extracts of stock-

market announcements. Each extract builds on an original, published stock-

market announcement of stock-listed companies. Then, we complement the

original text extract with an altered version. In the altered version of the extract, we

improve the tonality or readability with our TonalityTech Add-In for Microsoft

Word. Between each disclosure pair, analysts need to select the disclosure evoking

a stronger ‘Buy/Sell’ recommendation. In total, we received 278 responses from buy-

and sell-sided analysts and other finance professionals.

Sponsored by

About TonalityTech

TonalityTech’s scientifically-proven approach aims to optimize the writing process

and quality in capital market communication. We offer the first tool to combine

analytics and decision-support to enable evidence-based communication. We

analyze a unique database of press releases and corresponding stock market

reactions with our proprietary big data algorithms in order to evaluate the impact

of language onto the stock market performance. In doing so, we extract the most

relevant words and their positive or negative perception by investors: the tonality.

We integrate our continuously updated Dynamic Tonality Dictionaries into our

TonalityTech add-in for Microsoft Word, which not only analyzes the readability of

texts, but also visualizes how investors perceive language and suggests ways to

optimize it – integrating seamlessly into the writing process of our clients. Thus,

our tool works as a valuable quality compliance check of tonality and readability to

assure consistency and quality in capital market communication.

Learn more about TonalityTech

Learn more about our approach and how it can help you assuring quality

compliance in and creating shareholder value through your capital market

communications. Register for one of our webinars at https://tonality.tech/register

or reach out to us to schedule a call.

Customer Service TonalityTech GmbH

E-Mail: customerservice@tonality.tech | Phone: +49 761 203 96782

Press contact TonalityTech GmbH

Dr. Stefan Feuerriegel (CEO) | E-Mail: stefan@tonality.tech | Phone: +49 761 203 2400

Website TonalityTech GmbH: www.tonality.tech