Finance professors Timothy Loughran and Bill McDonald from the University of Notre Dame’s Mendoza College of Business won the inaugural Hillcrest Behavioral Finance Award for their paper, “The Use of Word Lists in Textual Analysis,” Hillcrest Asset Management announced recently.
The paper utilizes Big Data techniques to study methods of assessing the tone of business documents as part of stock selection analysis. Textual analysis is becoming increasingly common in accounting and finance research. The approach groups words into positive, negative or other sentiment categories and, based on these categories, determines the overall tone of a financial document. Loughran and McDonald’s paper argues that researchers should use only data created specifically for investments when gauging document tone.
“This study is on the cutting edge of both Big Data and behavioral finance research and is a deserving winner of the Hillcrest Behavioral Finance Award,” said Brian Bruce, CEO of Hillcrest Asset Management, an institutional equity investment management firm based in Plano, Texas, and editor of The Journal of Behavioral Finance, an Institutional Investor publication.
McDonald, the Thomas A. and James J. Bruder Chair in Administrative Leadership, researches predominantly in capital markets; he has been published in more than 30 leading journals in finance, accounting, management science and economics. He currently is serving concurrent appointments at Mendoza College as professor of finance and faculty liaison for the Department of Information Technology. He previously served as a vice president the Schwab Center for Investment Research in San Francisco. McDonald also has provided consulting services to major investment banks, brokerages and stock exchanges, and served as an expert witness.
Loughran, the C.R. Smith II Professor of Finance, concentrates his academic research primarily on equity investing. His work has been published widely in the top journals of the field, including The Journal of Finance, Journal of Financial Economics, Review of Financial Studies, and Journal of Financial and Quantitative Analysis. Research areas explored by Loughran include the long-run performance of new issues, payment form in corporate acquisitions, value versus growth investment strategies, and how a firm’s location affects its liquidity and capital structure. His work has been featured in The New York Times, The Wall Street Journal, Forbes, The Economist and Bloomberg Businessweek.
The Hillcrest Behavioral Finance Award seeks to annually recognize excellence in research through the selection of a current non‐published paper from academics on the subject of behavioral finance.
Loughran and McDonald’s paper was selected from among 29 submissions. The judging panel included Bruce and members of the Hillcrest Academic Advisory Board, who considered the entries based on significance of the paper to the field of behavioral finance; the extent to which the paper contained a new idea; greatest impact to the professional investment community; use of appropriate methodological rigor; and clarity of writing the paper or the presentation.