Product Experience and Stock Price Efficiency

45 Pages Posted: 16 Mar 2017 Last revised: 6 Aug 2017

See all articles by Lei Kong

Lei Kong

University of Alabama - Department of Economics, Finance and Legal Studies

Chengwei Wang

SKK GSB

Date Written: February 12, 2017

Abstract

We show that product using experience can improve stock price efficiency. Based on U.S consumer expenditure data from 1998 to 2015, we construct a consumption-based proxy for product experience at firm level. We find that investors incorporate both industry and firm specific information into stock price more quickly when they have more experience with relevant firm’s products. This effect is stronger if more individual investors are present. Analyst coverage only enhances price efficiency for non-consumer-goods firms. These results suggest that product experience can help unsophisticated investors to develop recognition and knowledge about firms’ business and to process information more efficiently. With product experience, people may not diligently read analyst reports.

Keywords: product experience, price efficiency, individual investor

JEL Classification: G14, L15, L60

Suggested Citation

Kong, Lei and Wang, Chengwei, Product Experience and Stock Price Efficiency (February 12, 2017). Available at SSRN: https://ssrn.com/abstract=2933299 or http://dx.doi.org/10.2139/ssrn.2933299

Lei Kong

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States

Chengwei Wang (Contact Author)

SKK GSB ( email )

Sungkyunkwan University
25-2 Sungkyunkwan-ro, Jongro-gu
Seoul, 03063
Korea, Republic of (South Korea)

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