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Riding attention spikes: How analysts respond to advertising

Minjae Koo¹; Annika Yu Wang²; Yin Wang³; Liandong Zhang³

¹ Korea University Business School Seoul South Korea · ² Bauer College of Business University of Houston Houston Texas USA · ³ Singapore Management University Singapore Singapore

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 that rely solely on trading revenues. The optimistic forecast bias intensifies the impact of advertising on investor trades of the underlying stock during the following week, especially on retail buying. Overall, analysts appear to issue optimistic forecasts to exploit retail investor attention spikes induced by advertising.

DOI

10.1111/1911-3846.13068

Volume

42 (4)

Pages

2683-2713

Language

en

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BibTeX

Sources

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