The Predictive Power of Managerial Confidence: A Dynamic Mechanism of Attention and Reliability in China’s Stock Market

Based on the “Future Outlook” sections of annual and semi-annual reports from Chinese A-share-listed companies (2011–2024), we construct a novel measure of managerial confidence by quantifying the intertemporal shifts in textual sentiment. Using a sample of 76,923 observations, our analysis reveals that this measure exhibits dynamic predictive power for expected stock returns. Specifically, in the short term, managerial confidence serves as a valid predictor. A long-short portfolio sorted by managerial confidence yields a 7.05% cumulative return spread over the five post-disclosure trading days. Mechanism analysis suggests that this short-term predictability stems from high managerial confidence effectively attracting investor attention. Over the medium term (six months), however, its predictive power hinges on the reliability of the confidence signal: For managers whose historical confidence has aligned with fundamental performance, high confidence predicts positive expected excess returns; for those who are chronically overoptimistic, it becomes an inverse predictor of firm value. These findings indicate that financial markets dynamically assess both the intensity and the reliability of signals within managerial disclosures, offering a new perspective on the predictive power of managerial psychological traits in capital markets.