Reading the Signals: What Does a Company's 'Body Language' Tell Investors?
Applying the principles of analyzing body language to corporate behavior can yield insights into a company's health or strategies. But what reliable datasets exist in this area, and how effective are they? Max Bowie looks at some of the providers serving this space, and how firms -- with the right pieces of the puzzle -- can construct an accurate big picture view of the market.
Others are trying to gauge something more esoteric: the “facial expressions” of companies themselves. One of the pioneers of this type of data—and responsible for coining the phrase “corporate body language”—is Woburn, Mass.-based event data provider Wall Street Horizon, whose EventBreaks dataset highlights changes in corporate events that could signal positive or negative news.
"We have academic research that proves the impact of data or location changes, and the sell side and buy side know this exists because they’ve been tracking it for years,” says Wall Street Horizon CEO Barry Star. “When for 30 straight quarters a company always announces earnings on a Thursday after quarter-end, then says it will put out its next results on a Monday before market open, we … realize that is an indicator that something significant has changed.”
Star says firms can use the data offensively or defensively. “By definition, there is volatility around these events, and we have clients who want to trade into that volatility and make money from it, and those who want to trade around it and avoid volatility. On the defensive side, when something moves and people don’t understand whether it will have positive or negative results, a market-maker could say, ‘I don’t understand this, so I’m going to increase the spread until I figure out what’s going on,’ ...
But for a trader, portfolio manager or risk professional to gauge the potential impact of an event, or compare like-for-like factors for a company, they also need a source of market data, such as derivatives and equities exchange operator Cboe, which has made Wall Street Horizon’s data available via its Cboe LiveVol Data Shop, enabling users to combine the vendor’s signals with historical equities and options data.