What makes an investment report influential? Is it the sophisticated analysis? The trading idea? The reputation of the analyst or the firm? Is it perhaps the colour, glossy pictures with circles and arrows? According to a study by a team of US and Canadian academics, it's none of those things. What matters is how readable the document is. The researchers examined 356,463 sell-side equity analyst reports from 2002 to 2009, testing the relationship between readability and stock trading volume reactions and then analysing the determinants of variation in report readability. They found that trading volume increase with the readability of text. Moreover, the analysts deemed to be "high quality" ones are the ones who write the most readable reports.
Source document: The working paper "Ambiguous Language in Analyst Reports," by Gus de Franco and Ole-Kristian Hope at the University of Toronto, Dushyantkumar Vyas from Minnesota, and Yibin Zhou from the University of Texas, is a 41-page pdf file.
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