Question of the Day: Do investors buy stocks in companies based on TV commercials?

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Jun 03, 2020
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Question of the Day, Behavioral Finance, Investing, Stocks

Answer: YES

Questions:

  • Why do you think that investors buy stocks in companies after they see a TV ad on those companies? 
  • Are there ads or commercials that you have seen over the past week where you think "Hmmm...that could be a good investment?"
  • Do you think this is a good idea? What other research might you want to do before making a decision to buy stock? 

Click here for the ready-to-go slides for this Question of the Day that you can use in your classroom. 

Behind the numbers (Columbia Law School): 

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.

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Interested in Behavioral Finance? We have a new unit on Behavioral Finance and also some upcoming virtual PDs on the topic too! 

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.