A new study traces a path from viewing commercials to increased interest in a company’s stock
Financial professionals and academics alike have long been aware that seeking constant updates on investments can have a significant — and harmful — effect on investor behaviour. But according to a new study, people’s decisions can also be affected by another stream of electronic noise.
“A new study suggests that commercials can influence investor behavior in real time, leading to a slight boost in trading activity in the advertiser’s stock,” reported The Wall Street Journal. Though the paper has not been published, it was recently presented at a conference of the National Bureau of Economic Research.
According to the Journal, researchers did an analysis on a data set that includes nearly 327,000 TV ads from 301 publicly listed companies, which aired between 2015 and the first quarter of 2017 on ABC, CBS, CW, Fox, and NBC.
The researchers found that a number of investors seek out financial information about a company in the 15 minutes after they see a commercial about it. That spike in curiosity was found to lead to an average increase of 3% in queries to the Securities and Exchange Commission’s Edgar database of company filings, as well as an 8% uptick in Google searches.
To eliminate the possibility that the searches were random or generated by automated bots, the analysis was controlled for differences in time zones. Ads that ran on the east coast were connected to searches from IP addresses in the same general area, with no noticeable increase in west coast search activity. Three hours afterward, the researchers an opposite trend when the ads appeared on the west coast.
The uptick in online searches for a particular brand, the study found later, led to a slight boost in trading activity specific to the company’s stock the following day. The researchers calculated that each dollar invested in TV advertising can produce roughly 40 cents of trading activity. That’s less than 1% of the average daily trading volume of a typical advertiser’s stock — but not an insignificant amount, according to one of the authors of the study.
Jura Liaukonyte, an associate professor at Cornell University’s Charles H. Dyson School of Applied Economics and Management, told the Journal that advertising is not designed to impact investor activity, which makes any influence TV ad has on stock movements surprising. “We’ve been able to show this completely unintended effect,” she said. “If I were to guess, most of the firms don’t know about this.”
The study found that the most impactful ads promoted pharmaceutical and financial firms, appeared first on the block, and aired during prime-time hours. Ads for brands that matched the name of their parent companies also saw more investor curiosity.
“This is the first paper I’ve seen that carefully documents the second-to-second timing that suggests [the effect consumer-targeted advertising has on individual investors] is causal and it isn’t spurious,” said Avi Goldfarb, a professor of marketing at the University of Toronto’s Rotman School of Management.