The Impact of TV Ads on Stock Trading

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Author: Matthew Cassel. Source: WSJ

It turns out that television ads may be more than just background 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.

Researchers found that TV ads create an immediate—and unexpected—spike in curiosity among individual investors. In the 15 minutes after a commercial has aired, the study shows, a number of investors seek out financial information about the advertiser, leading, on average, to a 3% increase in queries to the Securities and Exchange Commission’s Edgar database of company filings and an 8% uptick in Google searches.

To show that the searches weren’t random or the result of automated bot traffic, among other things, the researchers controlled for the fact that the same ads aired across different time zones. Ads that ran on the East Coast, for instance, were found to have yielded searches from IP addresses in the same general area, with no such noticeable increase in searches on the West Coast. Three hours later, a reverse effect was observed on the West Coast when the ads appeared.

The study further found that when this uptick in online searches for a particular brand happened, it led to a slight boost in trading activity in that company’s stock the next day. According to the researchers’ calculations, such an increase means that each dollar invested in TV advertising can generate roughly 40 cents of trading activity.

‘Completely unintended effect’

That’s less than 1% of the trading volume of the advertiser’s stock on a given day, of course, but it isn’t an insignificant number, says Jura Liaukonyte, an author of the study and an associate professor at Cornell University’s Charles H. Dyson School of Applied Economics and Management. TV advertising, she says, isn’t known to have such an impact on trading—nor is it designed to—so what’s most surprising is that TV ads would influence a stock price at all.

“We’ve been able to show this completely unintended effect,” says Dr. Liaukonyte, who wrote the paper with Alminas Žaldokas, an assistant professor in the department of finance at Hong Kong University of Science and Technology. “If I were to guess, most of the firms don’t know about this.”