Testing Market Response to Auditor Change Filings: a comparison of machine learning classifiers

The use of textual information contained in company filings with the Securities Exchange Commission (SEC), including annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, has gained the increased attention of finance and accounting researchers. In this paper we use a set of machine learning methods to predict the market response to changes in a firm\u27s auditor as reported in public filings. We vectorize the text of 8-K filings to test whether the resulting feature matrix can explain the sign of the market response to the filing. Specifically, using classification algorithms and a sample consisting of the Item 4.01 text of 8-K documents, which provides information on changes in auditors of companies that are registered with the SEC, we predict the sign of the cumulative abnormal return (CAR) around 8-K filing dates. We report the correct classification performance and time efficiency of the classification algorithms. Our results show some improvement over the naïve classification method

Adaptive text mining: Inferring structure from sequences

Text mining is about inferring structure from sequences representing natural language text, and may be defined as the process of analyzing text to extract information that is useful for particular purposes. Although hand-crafted heuristics are a common practical approach for extracting information from text, a general, and generalizable, approach requires adaptive techniques. This paper studies the way in which the adaptive techniques used in text compression can be applied to text mining. It develops several examples: extraction of hierarchical phrase structures from text, identification of keyphrases in documents, locating proper names and quantities of interest in a piece of text, text categorization, word segmentation, acronym extraction, and structure recognition. We conclude that compression forms a sound unifying principle that allows many text mining problems to be tacked adaptively