Investing would be so much easier if you could just read a CEO's mind.
There'd be no need to sort through financial statements and parse every word coming out of their mouths.
While that technology isn't here just yet, one that is could offer investors a leg up on the market: facial recognition.
That's because a new study links CEO facial expressions during TV interviews with stock performance.
It's similar to how skilled poker players look for tells in their opponents' body movements to determine when they're bluffing.
Translating that to stock prices may sound a little far-fetched, but previous research has already showed that studying the words executives use during conference calls and the levels of stress in their voice can offer valuable hints for investors.
"We make a lot of decisions quite often based on how people look. This seems to me to be a natural extension," said James Cicon, a finance professor at the New Jersey Institute of Technology who helped develop the technology and co-authored a paper on it.
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To prove this hypothesis, the researchers from NJIT and the University of Missouri used their facial recognition software on TV interviews of Fortune 500 leaders. They determined emotive states like fear, anger and disgust by detecting movements in the CEOs' eyebrows, eyes and mouth.
For example, the system identifies fear when the subject's eyebrows are raised, eyes and mouth are open and the corners of their lips are pulled.
Interestingly, the study found that when CEOs convey fear during the first two minutes of an interview, their companies' share prices tick higher.
"We propose that a fearful CEO is a motivated CEO and a motivated CEO increases firm value by increasing profit margins, return on equity and sales growth," the authors wrote. "Less fearful CEOs often fail to reduce costs and have poor market performance."
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The idea of a Fortune 500 CEO revealing fear or anger runs counter to the conventional wisdom that these polished executives always maintain perfect composure.
"People are much less capable of emotion regulation than we think. Most of us aren't very good at it at all," said Cicon.
He envisions creating a system down the line for sophisticated investors that converts the voice of an interview into a live transcript while simultaneously analyzing the audio and facial expressions for signs of stress.
"There is a lot of work to do. We're at the very beginning," Cicon said.
