Advertising, Investor Attention, and Stock Prices: Evidence from a Natural Experiment

56 Pages Posted: 20 Jul 2014 Last revised: 21 Jan 2019

See all articles by Erik J. Mayer

Erik J. Mayer

Southern Methodist University - Cox School of Business

Date Written: January 20, 2019

Abstract

Determining whether advertising affects stock prices through an investor attention channel is difficult because firms’ advertising, investors’ attention, and stock prices are all likely influenced by changes in firm fundamentals. I isolate the effect of advertising on investor attention and stock prices using events that place firms’ advertising in front of millions of Americans for reasons unrelated to firm fundamentals. Following the events generating the most advertising exposure, firms’ stocks experience large increases in investor attention, abnormally high turnover, and temporary price pressure. Retail investors are net buyers, whereas institutional investors’ selling drives the subsequent reversal towards fundamental values.

Keywords: advertising, investor attention, market efficiency, stock price, retail investor, institutional investor, natural experiment

JEL Classification: G12, G14, G11, M37

Suggested Citation

Mayer, Erik J., Advertising, Investor Attention, and Stock Prices: Evidence from a Natural Experiment (January 20, 2019). Available at SSRN: https://ssrn.com/abstract=2468181 or http://dx.doi.org/10.2139/ssrn.2468181

Erik J. Mayer (Contact Author)

Southern Methodist University - Cox School of Business ( email )

P.O. Box 750333
Dallas, TX 75275-0333
United States

HOME PAGE: http://sites.google.com/site/erikjmayer/

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