Listen to the people
Traditionally, a company's financials are used as signals to
determine the trajectory a company is following. Repeatedly solid
quarterly results convey a company on the ascent. But that
information is public, anyone can use it and everyone does use it.
How can a trading desk get a leg up on its counterparts if they're
all using the same information?
One of Repustate's hedge fund customers recently came up with a hypothesis:
what if the company's own employees were already telling us about
the fortunes of a company but we just weren't listening? Could
their complaints or praise of management be indications of future
troubles or success?
The first step is to get the actual reviews. There is no shortage
of employee feedback sites to access, but the notable ones are
Indeed, Vault, Fairy God Boss, and Glassdoor. Regional specific
ones like RateMyEmployer (Canada) and JobAdvisor (Australia) can
also provide insight, depending on the target industry and/or
The next step is when Repustate comes in. Using a customized language model for sentiment and classification, Repustate
classified reviews into various buckets and then applied sentiment
to those buckets. For example, one bucket would be "compensation"
and all aspects of a review that had to do with compensation would
be assigned accordingly e.g. "granted stock options", "no raises
given", "xmas bonus"
Consider the following review:
"Extensive use of outdated technology clashes with the hi-tech image
the company has (or wants to have). Not enough FTE, too many temps,
consultants, etc, who will be gone in a few months."
A quote like this could be categorized as follows:
|not enough FTE
|too many temps
|consultants etc. who will be gone in a few months
From this one quote alone, one could assume things don't look very
promising for this company. Encounter enough quotes like this and a
very negative trend can become obvious.
With some analysis in place, backtesting can be done to
see if historical prices could be forecasted using employee
(dis)satisfaction as a primary signal. Maybe only certain aspects
of employee reviews prove to be good indicators (compensation for example)
and others are just noise (parental leave policy).
Alternative data sets like these are growing in popularity and
Repustate's text analytics API can help extract any alpha that
might be hidden in plain sight.