Drawing Attention to Attention? Celebrity Endorsements and Stock Mispricing

65 Pages Posted: 2 May 2022 Last revised: 22 Dec 2023

See all articles by Yong Huang

Yong Huang

School of Accounting, Zhongnan University of Economics and Law

Xiaoran Ni

Xiamen University - School of Economics; Xiamen University - Wang Yanan Institute for Studies in Economics (WISE)

Xuanying Yu

Zhongnan University of Economics and Law - School of Accounting

Date Written: December 10, 2023

Abstract

We study the impact of celebrity endorsements, hiring celebrities as firm ambassadors, on stock mispricing. We find that although short-term market reactions are positive, celebrity endorsements result in more severe stock mispricing for focal firms in subsequent periods. Exploiting the outbreak of celebrity scandals as exogenous shock that terminates celebrity endorsements for reasons unrelated with fundamentals of focal firms, we document that such events subsequently mitigate stock mispricing. Furthermore, we document an attention contagion effect: increased customers’ attention on endorsers indeed boosts retail investors’ attention on focal firms. Last, celebrity endorsements increases stock liquidity while reduces the informativeness of stock prices. Overall, celebrity endorsements help draw and maintain attentions from retail investors, which not only drive up short-term stock prices but also have long-term adverse financial market consequences.

Keywords: Celebrity Endorsements; Investor Attention; Stock Mispricing; Market Efficiency

JEL Classification: G12; G14; G19

Suggested Citation

Huang, Yong and Ni, Xiaoran and Yu, Xuanying, Drawing Attention to Attention? Celebrity Endorsements and Stock Mispricing (December 10, 2023). Available at SSRN: https://ssrn.com/abstract=4054945 or http://dx.doi.org/10.2139/ssrn.4054945

Yong Huang

School of Accounting, Zhongnan University of Economics and Law ( email )

182,Nanhu Road
Hongshan
Wuhan, Hubei 430073
China

Xiaoran Ni (Contact Author)

Xiamen University - School of Economics ( email )

D204
Economic Building
Xiamen, Fujian 361005
China

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE) ( email )

Xiamen
China

Xuanying Yu

Zhongnan University of Economics and Law - School of Accounting ( email )

182# Nanhu Avenue
Wuhan, 430073
China

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