JM Insights in the Classroom
This study estimates the temporary and permanent stock price impact of tweets posted by firms during the day, and shows how various tweet attributes (i.e. valence and subject matter) contribute to these effects. It reveals that tweets reflecting either valence (positive or negative) or subject matter (consumer or competitor orientation) generate temporary price impact; tweets that incorporate both valence and subject matter are associated with permanent price impacts. Informed by the findings of this study, marketing managers can tailor tweets to elicit the desired level of permanent or temporary impacts on a firm’s stock price
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Lacka, Ewelina , D. Eric Boyd, Gbenga Ibikunle, and P.K. Kannan (2021), “Measuring the real-time stock market impact of firm-generated content,” Journal of Marketing.
Firms increasingly follow an ‘always on’ philosophy, producing multiple pieces of firm-generated content (FGC) throughout the day. Current methodologies used in marketing are unsuited to unbiasedly capturing the impact of FGC disseminated intermittently throughout the day in stock markets characterized by ultra-high frequency trading. They also neither distinguish between the permanent (i.e. long-term) and temporary (i.e. short-term) price impacts nor identify FGC attributes capable of generating these price impacts. In this study, the authors define price impact as the impact on the variance of stock price. Employing a market microstructure approach to exploit the variance of high frequency changes in stock price the authors estimate the permanent and temporary price impacts of the firm-generated Twitter content of S&P 500 IT firms. The authors find that firm-generated tweets induce both permanent and temporary price impacts, which are linked to tweet attributes; valence and subject matter. Tweets reflecting only valence or subject matter concerning consumer or competitor orientation result in temporary price impacts, while those embodying both attributes generate permanent price impact; negative valence tweets about competitors generate the largest permanent price impacts. Building on these findings, the authors offer suggestions to marketing managers on the design of intraday FGC.
Special thanks to Holly Howe (Ph.D. candidate at Duke University) and Demi Oba (Ph.D. candidate at Duke University), for their support in working with authors on submissions to this program.
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