Filings#100tier 1live in productionNew

`mdna tone delta`

cadence: Quarterlydata: lowlong onlyshort onlylong short

2011

#99 mdna_tone_delta — Loughran-McDonald 2011 JF tone-delta on 10-K filings.

What it checks

Read each year's 10-K through a finance-specific positive/negative word filter. Companies whose tone got more positive year-over-year tend to outperform after the filing date; those whose tone got more negative tend to lag.

Mechanism

Loughran-McDonald 2011 JF demonstrate the *tone* of 10-K filings — positive vs negative finance-specific lexicon — predicts forward returns. Distinct from filing_text_delta's *uncertainty* lexicon. Effect: bottom-decile tone-delta underperforms top-decile by ~2-3% over 4 weeks, persisting ~12 weeks. Today consumes the cached Item 1 (Business) text; switches to Item 7 (MD&A) when the EDGAR pipeline emits it (tracked in docs/alpha-research/proposals/).

No production champion data for this family yet. Stats appear once the discovery pipeline promotes at least one strategy with this family tag.

Signal rule

(#positive − #negative)/#total tokens (LM 2011 dictionaries) over Item 1 text; Y/Y delta z-scored over own filing history; long top quartile for hold_days, short bottom quartile.

Data dependencies

sec_10k_business_text
Worker data table — see services/worker schema.

Expected edge

Paper alpha: ~2-3% over 4 weeks post-filing in the 1994-2008 source paper
Paper window: 1994-2008

Loughran-McDonald 2011: ~2-3% over 4 weeks; ~1-2% OOS post-publication.

Related families

filing text deltaText-NLP

Year-over-year change in uncertainty/risk language in 10-K Item 1 ('Business' section). Spike in 'may', 'could', 'uncertain', 'challenging', 'risk' tokens per 10K words → management is privately more cautious → forward earnings miss / underperformance. Stable or decreasing language → quietly confident outlook → outperform.

lazy pricesEvent

Stocks whose 10-K (or 10-Q) text barely changes year-over-year OUTPERFORM those with big language shifts. The intuition: boring filings ≈ stable business ≈ slow-and-steady cash flow. Big text changes signal management hiding bad news with new boilerplate. Effect size: ~0.4 Sharpe alone, still replicating in 2020-2024. Long when the most recent 10-K's cosine similarity to prior year is in the top quartile (≥ 0.85); hold ~12 months until the next filing.

lazy prices shortEvent

Firms rewriting 10-K sections year-on-year signal regime change. Cohen et al. find shorting 'changers' yields up to 188bps/month — the asymmetry is strong: most alpha lives in the SHORT leg. Adds section-resolved diff (Item 1A risk-factors, Item 7 MD&A) over whole-document cosine.

transcript tone driftText-NLP

Loughran-McDonald 2011 + Price et al. 2012: changes in management's linguistic tone on earnings calls predict near-term price drift. Per-call LM tone = (positive − negative) / (positive + negative) on the FULL transcript; signal on quarter-over-quarter delta. Long when tone rose by > 0.05 vs prior call (hold 60-90 days = one quarter), short when tone dropped by > 0.05.

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mdna tone delta