Trade with Ads

49 Pages Posted: 2 Nov 2018 Last revised: 1 Dec 2018

See all articles by Vivian W. Fang

Vivian W. Fang

University of Minnesota - Twin Cities - Department of Accounting

Joshua Madsen

University of Minnesota - Twin Cities - Carlson School of Management

Xinyuan Shao

University of Minnesota - Twin Cities - Department of Accounting

Date Written: November 30, 2018

Abstract

This paper tests the theoretical prediction that uninformed trading encourages informed trading and increases stock price efficiency. Based on the observations that retail trading spikes on advertisement days and that firms frequently advertise at weekly intervals, we introduce an instrument—the existence of a product market ad seven calendar days earlier—to capture uninformed retail trading. Instrumented retail trading is positively associated with informed trading and stock price efficiency, suggesting that informed investors exploit increases in uninformed trading on recurring ad days and trade accordingly, and that their trading in turn accelerates the incorporation of private information into stock prices. Image analysis that strictly curtails the information content of recurring ads yields similar results.

Keywords: Advertisement, Noise Trading, Uninformed Trading, Informed Trading, Retail Trading, Institutional Trading, Stock Liquidity, Price Efficiency, Image Analysis

JEL Classification: G10, G12, G14, G23, M37

Suggested Citation

Fang, Vivian W. and Madsen, Joshua and Shao, Xinyuan, Trade with Ads (November 30, 2018). Available at SSRN: https://ssrn.com/abstract=3271851 or http://dx.doi.org/10.2139/ssrn.3271851

Vivian W. Fang (Contact Author)

University of Minnesota - Twin Cities - Department of Accounting ( email )

321 19th Avenue South
Room 3-109
Minneapolis, MN 55455
United States

HOME PAGE: http://www.vivianfang.org

Joshua Madsen

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

Xinyuan Shao

University of Minnesota - Twin Cities - Department of Accounting ( email )

271 19th Avenue South
Room 645 Mgt. Econ. Building
Minneapolis, MN 55455
United States

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