Drawing Attention to Attention? Celebrity Endorsements and Stock Mispricing
65 Pages Posted: 2 May 2022 Last revised: 22 Dec 2023
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: Suggested Citation