Riding Attention Spikes: How Analysts Respond to Advertising

Abstract

Product market advertising, while containing little new information, triggers spikes in investor attention. Using weekly advertising data, we find that sell-side analysts issue optimistic earnings forecasts in response to heavier advertising in the prior week. This effect is not driven by confounding earnings or product news. It is more pronounced for experienced analysts and analysts affiliated with brokerages relying solely on trading revenues. The optimistic forecast bias intensifies the impact of advertising on investor trades, especially on retail buying, of the underlying stock during the following week. Overall, analysts appear to issue optimistic forecasts to exploit retail investor attention spikes induced by advertising.

Keywords: Investor Attention, Advertising, Analyst Forecasts, Earnings Forecast Optimism

JEL Classification: M37, M40, G29