The CNBC Effect

An academic paper looks at what happens to a stock after the CEO appears on CNBC. Basically, the stock pops then gradually gives it back.

This paper investigates whether media attention systematically affects stock prices by analyzing price and volume reactions to 6,937 CEO interviews that were broadcast on CNBC between 1997 and 2006. We document a significant positive abnormal return of 162 basis points accompanied by abnormally high trading volume over the [-2, 0] trading day window. After the interviews, prices exhibit strong reversion; over the following ten trading days, the cumulative abnormal return is negative 108 basis points. The pattern is robust even after controlling for the announcements of major corporate events and surrounding news articles, and is larger in magnitude if the interview is accompanied by larger viewership. Furthermore, we find evidence that enthusiastic individual investors are more likely to trade based on CNBC interviews that are neither confounded by any events nor by other news articles. Lastly, we find that more attention drawing interviews are associated with higher short-selling volume, which suggests that rational utility maximizing investors take advantage of the regular pricing pattern related to the media attention.

Posted by on February 8th, 2011 at 3:26 pm


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