ALPHASENSE VISIONARIES SERIES

The Future of NLP

& Innovation

Peli Grietzer, Lead Researcher

Special Circumstances
AlphaSense Visionaries Series: The Future Of NLP & Innovation
I The purpose of an
N R EC E N T Y E A R S , T H E R E ’ S B E E N G R E AT
interest in applying sentiment analysis and oth-
er natural language processing techniques to
the study of earning calls. While early applications
were intended mainly to save human labor by au-
tomatically skimming earning calls, new applica-
tions have progressed towards augmenting analyst
reading capacities. Effective use of natural lan-
guage processing allows analysts to ‘read’ earnings
reports in new ways by statistically extracting indi-
cators that may not be immediately apparent using
human intuition.
To date, work in this area has mostly focused on
enhancing analysts’ ability to psychologically pro-
file executive speech. By computationally analyzing
language patterns in an earnings call, and apply-
ing knowledge of the psychological conventions
of public speaking (a branch of psycholinguistics),
researchers have been able to establish valuable
inferences about executives’ character and state
of mind. Analysts have then successfully employed
these quantified psycholinguistic insights to earn-
ings calls to cross-reference the content of specif-
ic statements, identify if certain topics made the
speaker nervous or concerned, and construct more
general psychological profiles of a company’s se-
nior executives. By formulating a variety of ‘quan-
titative-qualitative’ metrics, researchers hope to
capture unstructured data like corporate culture,
management style, strategic vision, and executive
morale as measurable quantities. These insights
can then be integrated into statistical models for
predicting market and financial performance.
While the idea of using natural language process-
ing to quantify the qualitative value signals in an
earnings call is very promising, the current focus
on sentiment and executive psychology may be
limiting. The purpose of an earnings call is not sim-
ply to add a human touch to earnings data, but to
2
earnings call is not simply
to add a human touch
to earnings data, but to
weave the data into a
coherent story that reflects a
company’s strategic
vision and interpretation
of the market.
weave the data into a coherent story that reflects a
company’s strategic vision and interpretation of the
market. Executives use earnings calls to contextu-
alize short-term events within a broader strategy,
address points of interest or concern about the state
of the industry as a whole, and lay out an outlook
for the future. An earnings call, in other words, is
an occasion for a company to share its ‘operational
philosophy’—the overall strategic vision that guides
its decisions. There’s great potential in employing
textual analysis of earning calls to quantify aspects
of companies’ strategic vision, and by doing so,
build a foundation for statistically modeling the dy-
namics of strategic innovation in an industry, and
its relation to financial results. This paper outlines a
method for using a recent technique from adaptive
systems science—often referred to as Resonance
Analysis1 or DeDeo’s Method—to study patterns of
strategy and innovation in enterprise companies
through automatic textual analysis of earnings calls.
1 Despite growing popularity, the technique to which this paper refers by name of
‘Resonance Analysis’ does not have an established name within the scientific literature at
the time of writing, It is sometimes colloquially known as ‘Dedeo’s method.’ See Ars Technica
report by Jennifer Ouellette.
AlphaSense Visionaries Series: The Future Of NLP & Innovation
What Is Resonance Analysis?
Resonance Analysis is a new, mechanically simple
technique developed in “Individuals, Institutions,
and Innovation” (Barron et al. 2018)2 to quanti-
fy “the creation, transmission, and destruction of
word-use patterns” in deliberative institutions;
in this case, parliaments. The point of Resonance
Analysis is not to study the development of word-
use patterns for their own sake, but rather to study
word-use patterns as a proxy for the evolution of
ideas and cognitive frameworks. The true object of
Resonance Analysis is understanding the creation,
transmission, and potential destruction of para-
digms or operational philosophies within a network
of agents that each devise strategies and policies.
This paper argues that with modest format chang-
es to the method’s original formulation, Resonance
Analysis is very suitable for studying the evolution
of corporate strategy through longitudinal analysis
of earnings calls. By applying Resonance Analysis to
an archive of earnings calls, an analyst can conduct
comparative analysis of industry-wide innovation
rates in a variety of industries and circumstance,
and track the rise and fall of individual thought
leaders, disruptors, and pioneers that shape the
logic of enterprise in an industry.
Performing Resonance
Analysis On Earnings Calls
To perform Resonance Analysis, one takes a se-
quence of causally connected documents, and
applies a statistical measure of similarity (or rela-
tive-entropy of latent Drichlet allocations) to track
changes in language patterns from one document
2 Barron, Alexander TJ, Jenny Huang, Rebecca L. Spang, and Simon DeDeo. “Individuals,
Institutions, and Innovation in the Debates of the French Revolution.” Proceedings of the
National Academy of Sciences 115, no. 18 (2018): 4607-4612.
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to the next. Because latent Drichlet allocations are
probabilistic word-frequency models, the resulting
measure of document similarity is coarse in a way
that tends to capture what we might call documents’
“cognitive frameworks.” Two documents will show
high similarity if they “answer the same kind of ques-
tions” about the world, even if the answers turn out
different in each case. In other words, what matters
isn’t whether two earnings calls report similar market
performance—what matters is whether two earnings
calls analyze market performance using similar cri-
teria. Once these sequential similarity relations have
been mapped, one uses them to calculate the impact
of each document, or of the agent that it represents,
on the rest of the system.
The key to studying a complex property like impact
through a simple statistical comparison between
texts is the idea that impact, or resonance, can be
measured as similarity to the future minus similar-
ity to the past.
In other words, a document x (or the agent that it
represents) is a force of innovation to the degree
that x is different from documents that come be-
fore, x, but similar to the documents that come after
x. Using this method to pinpoint the agents that pro-
duce documents with high resonance allows us, in
effect, to study who creates (or at least pioneers) the
cognitive frameworks that define the future.
In the original applications of Resonance Analysis,
it is a crucial premise that the documents under
consideration are directly causally connected—one
deals with materials like parliamentary speeches,
literary or scientific publications; and the other on
kinds of public speech explicitly intended to shape
future discourse.
When adapting Resonance Analysis to study indus-
try, we make a slightly different assumption to the
AlphaSense Visionaries Series: The Future Of NLP & Innovation
same effect: we assume that the operational philos-
ophy evident in an earnings call reflects a company’s
business decisions (as well as business communica-
tions) over a given quarter, and that each company’s
operational philosophy in the next quarter is in part
driven by observing other companies’ business de-
cisions and communications in the present quarter.
Here is a simple, hypothetical use case:
Suppose that earnings calls from 2016 in the fash-
ion retail industry diverge sharply (in nature or pat-
tern of content) from 2010-2015 earnings calls. This
indicates that Q1 of 2016 is a critical moment of
strategy change in the fashion retail industry. Upon
further examination, we find there is one fashion
retailer— let’s call it AlphaFashion— whose earn-
ings calls from 2015 are more similar (in content
patterns) to the typical 2016 fashion retail earnings
call than to the typical 2015 fashion retail earnings
call. This indicates that in 2015, AlphaFashion was a
strategic pioneer.
We can now go on to measure the trajectory of
AlphaFashion’s status as a pioneering company, and
its place in the evolution of the fashion retail industry:
»» Did AlphaFashion’s strategic innovation acceler-
ate or slow after 2015?
»» Is industry-wide absorption of AlphaFashion’s
strategy-innovations rising or falling?
»» Are other innovative companies in the industry
pushing the same innovations as AlphaFashion,
or are there multiple directions of innovation in
the industry?
Once we extract these ‘quantified intangibles,’(in-
sights gleaned from unstructured data) we can be-
gin to systemically study their relationship to mar-
ket and financial results, allowing us to integrate
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these factors into both traditional value analysis
and statistical or ML-driven valuation models. On
a more macro level, these same building blocks can
form the basis for comparative analysis of innova-
tion waves at different industries during different
times. This can be used to reveal correlations be-
tween the structure and frequency of innovation
and industry-level profit patterns. When combined
with qualitative methods of analysis, such study
may also yield valuable new qualitative insight. It
is plausible, for instance, that mindsets associated
with industry bubbles should have detectable ‘res-
onance’ signatures.
Internal Resonance Analysis
for Earning Calls
In addition to the longitudinal use of Resonance
Analysis to study innovation, it bears noting that the
conversational flow of an individual earnings call
may also be the site of interesting, informational
dynamics. By applying relative-entropy metrics to
the sequence of speeches, questions, and answers
that make up an individual earnings call, one can
explore certain insights that may turn out to have
valuable correlations. For example:
»» Does the CEO’s speech prefigure many of the
questions, or are questions “coming out of left
field?”
»» Does the Q&A converge on one main topic, or does
it cover many seemingly unrelated issues?
»» Do the executives’ answers address specific sub-
tleties introduced by the investors’ questions, or
are the answers generally more generic?
Answering such questions based on quantitative
resonance relations between sections of an earnings
AlphaSense Visionaries Series: The Future Of NLP & Innovation

call requires a degree of creativity and interpreta-
tion. But recent work that applies relative-entropy
techniques to study the structure and flow of indi-
vidual texts3 suggests it may be a rewarding second-
ary application.
Conclusion
The data-driven study of collective cognitive dy-
namics, ranging from the social evolution and in-
novation of frameworks and institutions, to the
back-and-forth of a debate or conversation, is a
major new direction in the social sciences. Since
3 Thompson, William HW, Zachary Wojtowicz, and Simon DeDeo. “Lévvy Flights of the
Collective Imagination.” arXiv preprint arXiv:1812.04013 (2018).
both markets and corporations are essentially plat-
forms for collective mindset, advances in the field
should hold great promise for financial analysis and
business insight. This paper summarizes a power-
ful, but mechanically simple method for modeling
impact within processes of collective cognition, and
sketched basic designs for applying it to business
enterprise at two scales: the analysis of innovation
in an industry, and the analysis of dialogue between
executives and investors. While the development of
scientific research based on Resonance Analysis
is still in its early stages, and the potential of the
method isn’t fully understood, there’s strong reason
to think that it can make substantial contributions
to the study of financial records and its application
in investment analytics.

Peli Grietzer is a lead researcher with the computational social sciences think
tank Special Circumstances. Peli received his PhD from Harvard Comparative
Literature in collaboration with the Einstein Institute of Mathematics in ‘17,
for research applying neural network models to aesthetic theory. He lectures
internationally to academic, business, technical, and arts audiences about the
relationship between machine learning, computational cognitive science, and
cultural theory, and consults for companies like Element AI and Integrate AI as a
research communications expert.

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