Case studies

When EU Leaders Speak, the Markets Listen

European Academic Research, November 2014

Do actions really speak louder than words? European research shows that the language used in communications by political leaders can explain a large proportion of variation in European and Global stock returns in the period following meeting dates. Investors react more favourably to positive conclusions and declarations, as well as when Heads of State demonstrate moral rectitude. By Juliet Bourke - Consulting, Partner.

Can the traditional macro-economic factors that are seen to influence stock market valuations be upstaged by the words used by political leaders? There is a growing body of research demonstrating the significant impact of language used by corporate and political leaders on the sentiments of shareholders and investors, which in turn influences stock performance.

Much of the recent research has, albeit unsurprisingly, shown the predictive power of typical corporate announcements, such as earnings announcements, letters to shareholders, merger and dividends news, etc., on future stock market performance. More broadly on the political landscape, stock market volatility has been shown to increase as a result of many politically driven events such as conflict, elections and risk upgrades.

In this paper from the European Accounting Review, Dr Tomasz Piotr Wisniewski and Dr Andrea Moro from the University of Leicester School of Management found that stock valuations increased when more positive words were used by EU leaders, as well as when they displayed perceived morality and used less abstract language when discussing policy. The findings of this research have significant implications in both the political and corporate fields as they identify clearly how (and which) words impact investor confidence.


The researchers used content analysis software to examine the impact of language used in communications arising from European Council Meetings on stock evaluations. The European Council plays an important role in defining political direction for the EU, providing a valuable forum for policy debate and economic decision-making. Attended by the European heads of state, European Council meetings -  and more importantly their outcomes - are greatly scrutinised by stock market investors. The researchers’ hypotheses with regards to European Council meeting communications were as follows:

1.   A higher proportion of positive words will lead to stronger stock market performance

2.   A higher proportion of abstract will lead to weaker stock market performance

3.   Perceived adherence to moral values by Heads of State will lead to a stronger stock market performance

4.   A higher proportion of region-specific references will lead to weaker stock market performance.


The data source for the study was the online archive of the European Council which catalogues all communications arising from European Council meetings. These communications outline meeting outcomes and conclusions, with key comments and points of view of European Leader participants included.  In total, the communications arising from 75 meetings dating back to 1993 were analysed.

The text-analysis software used in this study was General Inquirer which searches for keywords that fall into predefined categories. These categories are based on word-lists designed to capture certain sentiments. The software counts the frequency of words in a particular category that appear in a body of text, and the total number is scaled against the total word count of the text to standardise and allow comparability between communications.

The word categories used in the study and total number of associated words in the General Enquirer database were as follows:

Positive: 1,915 words that reflected a favourable mood or positive outlook. Research has shown that social mood significantly impacts financial markets and can drive price changes in common equity. Words in this category included: abundance, accolade, accomplishment, achievement, admirable.

Abstract: 276 words that were not directly associated with visual images, making them more difficult to process and assimilate. In the context of politics and finance, investors may believe that the reasons such a linguistic style is being used is because the leader does not have access to relevant information.. Therefore they may be more sceptical about the economic outlook. Words in this category included: combination, criteria, complexity, destiny, dilemma.

Rectitude: 30 words that reflected moral conviction and commitment to ethical maxims. Evidence shows that when leaders express ethical values, this enhances employee perception of equitable treatment, leading to more positive behaviours in not only employees but also investors. In politics, moral rectitude has been shown to have a positive effect on voter perception in the run for elections. Words in this category included: condone, forgive, pardon, reparation, trust.

Region: 61 words that referred to places or regions. Use of such words is likely to arise when politicians are lobbying for the interests of their particular geography. Since the goal of European Council meetings is to shape pan-European strategy, the researchers expected stock market investors to be less influenced by a focus on specific locations. Words in this category included: City, Country, Local, Municipality, Territory.

To ensure the impact of these word categories could be measured, the researchers created eight dummy variables in the European Council meeting communications reflecting the most common themes discussed. These were competitiveness, employment, productivity, EU enlargement, justice, immigration, EU budget as well as war and peace issues. They also controlled for three major macroeconomic variables in industrial production growth, change in unemployment and consumer price index inflation recorded in the month a European Council meeting was held.

Finally the stock market indices used were the MSCI Europe and MSCI World indices. These are both float-adjusted and market capitalisation weighted, deemed to reflect the performance of developed European and world markets. 


The researchers found that the largest fluctuations in stock market returns, both at a European and Global level, were highest in the days immediately following European Council meetings. The changes in stock market returns reflected a substantial monetary figure as investors reacted to the information revealed in the communications arising from the meetings. Subsequent regression analyses on the impact of the word categories reinforced the power that leaders’ words had on asset valuations.

The researchers found a statistically significant effect in the increase in stock market returns when more words are used in the Positive category. This may well have reflected the notion of ‘mood contagions’ where emotional expressions of leaders are transferred to those they lead. In this instance the audience was stock market investors who reacted favourably to the positive language used. 

Words in the Rectitude category were shown to have an even more powerful effect on returns, suggesting perceived morality and adherence to ethical standards amongst leaders indicates stronger international cooperation, boosting investor confidence.

The results also showed a negative impact on stock market returns when more Abstract words were used, suggesting market observers were more sceptical when political leaders resorted to language that was less concrete and difficult to visualise. There was also a statistically significant negative effect when European Council meetings diverted focus to particular geographies, using words in the Region category. This suggests investors were less attentive when discussions revolved around regional issues, when the purpose of the meetings was to discuss EU matters.

Finally, the dummy variables reflecting common themes of the European Council meetings were shown to have little predictive power on stock market returns. Given meeting agendas are announced prior to them taking place, it appears investors were more concerned with what is concluded, as reflected in the communications post the meeting, as opposed to the topics discussed during the meetings.


The findings of this study have wide-ranging implications for the way leaders communicate in all economic, political and corporate forums. It is clear that the terminology leaders use can significantly impact the decision-making of those who scrutinise their outputs, namely investors.

From the perspective of the European Council meetings, market participants base a great deal of their trading decisions on the outcomes communicated following the meetings. The economic impact of the words used in these communications exceeded the impact of the meeting topics themselves, which are traditionally seen as the main (standalone) predictors of market performance, e.g. competitiveness, employment, budget.

Looking at the specific impacts of the word categories in this study, it is perhaps unsurprising that the use of more positive language significantly impacts market performance. This finding reinforces the value of leaders describing unfavourable economic outlooks in more positive terms so as to limit the adverse impact on the market. This holds true for leaders in many other environments, for example when CEOs or other leaders want to boost employee and investor perceptions during a downturn or a stormy merger and acquisition. 

More interestingly however, was the finding in relation to perceptions of moral rectitude, and in particular that morality words had a more powerful effect than positivity. Research suggests that, as a rule of thumb, humans intrinsically look to behave ethically and commit to moral standards in order to gain social acceptance. This extends to the notion that trust and reciprocity are the cornerstones of a functioning economy. This study revealed that investors value moral rectitude in European leaders, a more personal trait as opposed to the topics they discuss.  Again this has wide-ranging implications for how leaders portray themselves as individuals, or in a collective decision-making environment, in their communications and the impacts these have on those they govern, lead or influence.

Another key lesson learned from this study was that the use of more abstract words in European Council meeting communications led to a more sceptical outlook and a dip in stock market performance. The researchers suggested that words that are less concrete and have a degree of ambiguity are more difficult to visualise and therefore process. The impact of using such words may be two-fold. Firstly communications that are more difficult to interpret may disengage the audience and are less likely to be considered in decision-making. Secondly, abstract words may also be a leading indicator of an underlying unfavourable position that those communicating are deliberately leaving open to interpretation, rather than reporting on actual facts, in attempt to mitigate adverse impacts.

Given negative impacts on stock market returns were still observed in this study, this reinforces the importance of using clear and concrete language in communications when the audience has a vested interest in the content.

Finally, an adverse impact on stock market returns was also observed when European leaders focused on regional issues as opposed to those at a pan-European level. This highlights the importance of focusing on the topic at hand in communications, particularly when the impacts can correspond to large economic gains or losses. Expanding on more specific issues may be more relevant for a more targeted audience who are likely to have a more direct benefit.

In conclusion, this study shows how leaders communicate has a far greater impact on audiences than what they communicate. Whilst it might be tempting for leaders reading this to take a ‘checklist’ approach to communications, making sure to include more positive and concrete words, as well as showing moral rectitude, it is perhaps more important to consider how the audience will use the information conveyed. In the context of this study, investors clearly scrutinised European Council meeting communications and investors’ subsequent decisions led to quite significant stock market fluctuations of substantial economic value. Impacts such as these reinforce the idea that leaders in all walks of life must carefully consider the disproportionate impact of the words they use on the behaviours of those that listen.

Thinking about this more positively - we assume that in addition to their extensive knowledge of their chosen field and market, leaders, and particular CEOs, politicians, Heads of State, have an exceptional ability to lead people to success.  This research provides ideas about how leaders can further enhance their positive impact by paying attention to their lexicon to ensure it is robust, clear, fit for purpose and reflects positive moral values.

Wisniewski, T. P., & Moro, A. (2014) When EU Leaders Speak, the Markets Listen European Accounting Review 23(4), pp. 519-551.

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