The talking heads on CNBC attract their fair share of criticism, and as it turns out, this criticism is deserved.
During October 2013, Y. Han (Andy) Kim and Felix Meschke published a paper within which they investigated whether media attention affects stock prices through the trading of individual investors. The study, entitled "CEO Interviews on CNBC" produced some very interesting results.
CNBC interviews impact stock performance
The key takeaway from the study was the fact that the 0-2 day trading window following a CEO interview on CNBC, the average cumulative abnormal stock return was 1.62%. However, prices exhibited a substantial revision of 1.08% over the next ten trading days. The study looked at 6,937 CEO interviews on CNBC to arrive at these figures. CEO Interviews on CNBC also discovered that these returns could vary significantly depending on various factors, including viewership, the language tone of the CEO and the attractiveness of the interviewer!
Abstract:
"We investigate whether media attention systematically affects stock prices through the trading of individual investors by exploiting the substantial discrepancy between perceived and actual information content of 6,937 CEO interviews on CNBC. The average cumulative abnormal stock return over the [-2, 0] trading day window is 1.62%, yet prices exhibit strong reversion of 1.08% over the following ten trading days. The magnitude of price response is positively correlated with the viewership as well as the language tone of the CEO. We find that individual investors are net buyers on the interview days, and that they keep on buying if the interview was both carried out by attractive anchorwoman and was watched by more male viewers. The price reversal is attributable to abnormal short-selling volume on interview day. Moreover, we find that the price run-up before the interviews is largely driven by individual investors that are excited even at the pre-announcement of the interview. We also find evidence of asymmetric attention cascade coming from CNBC interview upon the tone of media coverage of the firm, tilted towards the negative."
Charted, the results of the study are quite interesting.
And those buying after a CNBC CEO interview tended to be smaller investors, placing deals of approximately $5,000 or less.
The full paper can be found here.
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Like this article? Sign up for our free newsletter to get articles delivered to your inbox Rupert may hold positions in one or more of the companies mentioned in this article. You can find a full list of Rupert's positions on his blog. This should not be interpreted as investment advice, or a recommendation to buy or sell securities. You should make your own decisions and seek independent professional advice before doing so. Past performance is not a guide to future performance.