Linguistic Passiveness in Earnings Calls and Stock Returns

Abstract

We study linguistic passiveness as the fraction of passive-voice sentences in earnings conference call Q&A sessions and show it is informative for equity markets. Using 105,642 U.S. calls from 2008 to 2024, passiveness is negatively associated with announcement-day returns among positive-surprise firms: returns fall from 4.38% to 2.74% across passiveness quintiles. This announcement-day discount fully reverses over the subsequent quarter, indicating a temporary mispricing when news is good. For negative-surprise firms, passiveness has no announcement-day effect but predicts negative long-run returns, consistent with investor under-attention when salient bad news dominates. Passiveness remains informative after controlling for sentiment and standard readability proxies, suggesting that linguistic passiveness captures a distinct yet important dimension of managerial communication.

arXiv comment9 pages, 6 tables, 6 figures, 7th ACM International Conference on AI in Finance