A few days ago I covered a 2013 study titled, "CEO Interviews on CNBC", written by Y. Han (Andy) Kim and Felix Meschke, which looked at the relationship between media attention and the trading of individual investors.
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.
Y. Han (Andy) Kim and Felix Meschke's paper isn't the only study that has looked at the relationship between media attention and stock performance.
Impact of CNBC attention on stock prices
A more recent paper "Talking Numbers: Technical versus Fundamental Recommendations", published during August 2015 assessed the economic value of technical and fundamental recommendations simultaneously featured on “Talking Numbers,” a CNBC and Yahoo joint broadcast.
Doron Avramov, Guy Kaplanski and Haim Levy put together this study, and at its core, the research focuses' on the classic fundamental vs. technical debate.
Abstract:
"This study assesses the economic value of technical and fundamental recommendations simultaneously featured on “Talking Numbers,” a CNBC and Yahoo joint broadcast. Technicians display stock-picking skills, while fundamentalists reveal no value. In particular, technicians overwhelmingly outperform fundamentalists in predicting returns over horizons of three to nine months and moreover they produce large alpha with respect to the Fama and French (1993) and momentum benchmarks. Considering market indexes, Treasuries, commodities, and various equity indexes, both schools of recommendation generate poor forecasts."
The researchers found that:
Consistent with the semi-strong market efficiency hypothesis, the fundamental analysis reveals no ability, whatsoever, to predict future returns on all the assets examined. Surprisingly, technical analysts exhibit significant predicting ability of individual stock returns which could point to market inefficiency even among the universe of the largest and most traded stocks. For one, trading individual stocks based on technical recommendations yields large payoffs even after accounting for reasonable transaction costs. Moreover, such stock-picking ability is highly robust and is unaffected by controlling for common risk factors, firm’s characteristics, including past returns, industry effects, analyst’s gender, the potential immediate impact of the broadcast, transaction costs, and outliers.
But overall:
"Overall, the evidence shows that proprietary trading rules could, at best, enhance investments in single stocks, while returns on broader assets are unpredictable."
Presented without comment.
See full study below.
The post CNBC Coverage Impacts Stock Performance Part Two appeared first on ValueWalk.
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.