‘When Is a Liability Not a Liability’ Revisited: Should Financial Text Analysis Abandon General Lexicons?

Abstract

Finance scholars increasingly believe automated text analysis using a general lexicon misclassifies the tone of financial terms and is ineffective at predicting firm returns. We show that research originating this belief failed to use required word-sense disambiguation, leading to inaccurate results and conclusions regarding the effectiveness of general lexicons. Contrary to this research, we find that a disambiguated general lexicon accurately identifies tone in financial documents. Moreover, disambiguated general lexicons provide advantages of generalizability, precision, and objectivity. Our results imply that general lexicons should not be abandoned in financial text analysis, and disambiguation is critical for this type of analysis.