Darina SlatteryTKE02 30 th August 2002 1 Automatic Analysis of Corporate Financial Disclosures...

Darina Slattery TKE’02 30th August 2002

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Automatic Analysis of Corporate Financial Disclosures Darina M. Slattery

University of Limerick Ph.D. Postgraduate Student

Richard F.E. Sutcliffe University of Limerick

Eamonn J. Walsh University College Dublin


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Research Objective To investigate the correlation between

the release of disclosure information and share price resonses, and to develop a system that will analyse such disclosure information and predict the likely share price response accordingly


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Principal Stages of Research Identify Interesting Content in Disclosures

Use Classification Techniques to Predict the likely Share Price Response, based on Interesting Content identified


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Definition of Financial Terms Corporate Financial Disclosures

Securities & Exchange Commission (SEC)

EDGAR


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Definition of Financial Terms SIC Code

CIK Code

Ticker Symbol

Registrant


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Sources of Financial Information Disclosures

Historical Share Price Data

Press Releases

Industry Trends

Speculation


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SEC & EDGAR: Background (1/2) The Securities Act of 1933 & the Securities

Exchange Act of 1934: Require all Public Domestic Companies

to disclose and file Specific Periodic & Annual Reports with the SEC

As of May 1996, all SEC disclosures must be filed on EDGAR and thus made available online at http://www.sec.gov/edgarhp.htm


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SEC & EDGAR: Background (2/2) EDGAR can be accessed by:

Web Browser Anonymous File Transfer Protocol (FTP)

EDGAR Search Facilities: General-Purpose Searches Special-Purpose Searches


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EDGAR Disclosures Format Dictated by Law

Plain Text or HTML only

Certain Limitations on HTML Tags For Consistency


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EDGAR Form Types (1/2) Form 10-Q

Quarterly Report Continuing View of the Company Due within 45 Days after Quarter Close

Form 10-K Annual Report Comprehensive Overview of the Company Due within 90 Days after End of Fiscal Year


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EDGAR Form Types (2/2) Form 8-K

Current Report Reports the Occurrence of any Material

Events and Corporate Changes Of interest to Shareholders & Potential

Investors Due within 5 or 15 Days after the Event

Occurrence, depending on Event


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Stages Undertaken To-Date Obtained Suitable Data Set

Analysed Structure of Form 8-K’s

Prepared Content for Classification

Attempted to Classify Documents by Likely Share Price Response


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Data Set Obtained 567 Form 8-K disclosures in SIC 7372

Filing Date URL Share Price Response around Filing Date

Up Down Nochange

219/ 567 Disclosures Chosen for Experiments Categorised by Share Price Response

80% of each Category used as Training Data 20% of each Category used as Test Data


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Structural Analysis Header Items 1-9

Item 1: Changes in Control of Registrant Item 2: Acquisition or Disposition of Assets Item 3: Bankruptcy or Receivership Item 4: Changes in Registrant’s Certifying Accountant Item 5: Other Materially Important Events Item 6: Resignations of Registrant’s Directors Item 7: Financial Statements and Exhibits Item 8: Change in Fiscal Year Item 9: Regulation FD Disclosure

Appendices


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Content Preparation: Wordsmith

On June 2, 1998, XXX Corporation announced in a press release the signing of an Acquisition Agreement and Plan of Merger …On May 2, 2000, XXX Corporation announced in a press release the sale of the outstanding capital stock of …

On April 17, 1997, XXX Corporation signed an Agreement and Plan of Merger …

agreement and plan of merger

announced in a press release

the outstanding capital stock of…

Note: Sorted by frequency

in descending order

219 Disclosures

…

Large Phrase ListWORDSMITH


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Content Preparation: Tokenisation

‘agreement’,’and’,’plan’,’of’,’merger’‘announced’,’in’,’a’,’press’,’release’‘the’,’outstanding’,’capital’,’stock’,’of’…

agreement and plan of merger

announced in a press release

the outstanding capital stock of…

Note: Sorted by frequency in descending order

Large Phrase List Tokenised Phrase List

Note: 219 Disclosures are also Tokenised


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Content Preparation: Compound Search Trees

‘agreement’,’and’,’plan’,’of’,’merger’‘announced’,’in’,’a’,’press’,’release’‘the’,’outstanding’,’capital’,’stock’,’of’…

COMPOUND SEARCH TREE GENERATOR

[agreement, [and, [plan, [of, [merger, []]]]]]

[announced, [in, [a, [press, [release, []]]]]]

[the, [outstanding, [capital, [stock, [of, []]]]]]

…

Note: At this stage, the phrase list is cut off at 100, 1000 & 10000 phrases for the three experiments

Tokenised Phrase List

Search Tree


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Content Preparation: Compound Noun Matching (1/2)

‘on’,’june’,’2’,’1998’,’xxx’,’corporation’,’announced’,’in’,’a’,’press’,’release’,…‘on’,’may’,’2’,’2000’,’xxx’,’corporation’,’announced’,’in’,’a’,’press’,’release’,…‘on’,’april’,’17’,’1997’,’xxx’,’corporation’,’signed’,’an’,’agreement’,’and’,’plan’…

…

Search Tree

COMPOUND NOUN

MATCHING

219 Disclosures

[agreement, [and, [plan, [of, [merger, []]]]]]

[announced, [in, [a, [press, [release, []]]]]]

[the, [outstanding, [capital, [stock, [of, []]]]]]

…


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Content Preparation: Compound Noun Matching (2/2)

announced_in_a_press_releaseagreement_and_plan_of_merger…

announced_in_a_press_releasethe_outstanding_capital_stock_of…

agreement_and_plan_of_merger…

COMPOUND NOUN

MATCHING

219 DisclosuresWith Single Token

Phrases

…

The Number of Single Token

Phrases is Determined by the Length of

Phrase List Used (100, 1000 or

10000 Phrases)


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Content Preparation: Overview

On June 2, 1998, XXX Corporation announced in a press release the signing of an Acquisition Agreement and Plan of Merger …On May 2, 2000, XXX Corporation announced in a press release the sale of the outstanding capital stock of …

On April 17, 1997, XXX Corporation signed an Agreement and Plan of Merger …

219 Disclosures

…

announced_in_a_press_releaseagreement_and_plan_of_merger…

announced_in_a_press_releasethe_outstanding_capital_stock_of…

agreement_and_plan_of_merger…

…

219 Disclosures With Single Token Phrases


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Classification: DTS System (1/2) The C4.5 Decision Tree System (DTS)

A Machine Learning Algorithm

Derives Decision Trees Set of Records (i.e. Set of Disclosures)

Non-Categorial Attributes Categorial Attribute

Files Required File.names File.data File.test


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Classification: DTS System (2/2) File.names

Defines Non-Categorial & Categorial Attributes

File.data & File.test Training & Test Files Take Same FormatTRUE,FALSE,FALSE,…,UP

FALSE,TRUE,TRUE,…,DOWN

FALSE,FALSE,TRUE,…,NOCHANGE

…


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Classification: IIS System The Inverted Index System (IIS)

A Conventional Information Retrieval (IR) System

But used as a Classification System Here Query = Disclosure Only 3 Documents in Document Collection

Ups Downs Nochanges


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Classification Experiments Conducted Three Experiments

DTS & IIS used in each experiment

First Experiment 100 Most Frequently Occurring Phrases

Second Experiment 1,000 Most Frequently Occurring Phrases

Third Experiment 10,000 Most Frequently Occurring Phrases


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Classification ResultsN-Most Freque

nt Phrases

DTS IIS (Default

up)

IIS (Default down)

IIS (Ignore default)

100 38% 36% 38% 45%

1,000 44% 31% 38% 34%

10,000 42% 40% 42% 42%


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Conclusions & Next Steps How can we Improve the Classification

Results? Identify Significant Disclosures Identify Significant Content Increase Data Set Two-Way Classification?

Automate Partitioning of Relevant Disclosures

Automate Scanning for Significant Content


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Contact DetailsMs. Darina Slattery, B.B.S. M.Sc.

Dept. of Computer Science & Information Systems,University of Limerick,

Limerick,Ireland

Tel: +353-61-213551Email: [email protected]

Darina SlatteryTKE02 30 th August 2002 1 Automatic Analysis of Corporate Financial Disclosures...

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