02.11.2020

Do Retail Investors Acquire Information from TV?

Amid the turbulence in stock markets, retail investors continue to look for investment ideas. With thousands of publicly-traded stocks available, many retail investors often resort to their recent personal experiences when deciding on which stocks to buy or sell. In a recent paper, we find a predictable, recurring, and robust pattern between investor exposure to television commercials and subsequent retail stock trading. We find that, within 15 minutes of seeing an ad for a firm’s product or service, investors begin searching for financial information on that firm’s stock. This surge of attention leads to a higher trading volume of the advertiser’s stock the following day – and contributes to a temporary rise in the stock price of that firm. Indeed, our recent research shows that the effects of advertising on investor behavior and stock prices are more far reaching than previously believed.

We documented these effects by comparing responses among households that were and were not exposed to the ads. We took advantage of the three-hour lag between the East and West Coast for airing the same commercials during the same shows on national television channels. Our analysis used the IP addresses of investors, and minute-by-minute television advertising data involving some 326,000 ads, 301 firms, and $20 billion in ad spending. These extensive data made it possible for us to examine the real-time effects of TV advertising on investor searches for online financial information and subsequent trading activity.

The related advertising effects weren’t confined to the company airing the ad. Investors also sought information on the advertising firm’s closest rivals and their suppliers. These ad-driven information searches on the closest rivals translated to higher trading volume of their stocks, too. We believe our work is the first to document a causal effect of a given firm’s ads on investor interest in its closest rivals and major suppliers.

ZALDOKAS , Alminas

Associate Professor
Finance