Featured Research

from universities, journals, and other organizations

Online chatter affects stock returns

Date:
April 19, 2012
Source:
University of Southern California
Summary:
It turns out that all of those bad reviews of new computers, shoes, toys and other products at Amazon and other websites with consumer reviews have more impact than just helping shoppers decide if they'll buy the newest smartphone. Negative web buzz can drive down stock prices.

It turns out that all of those bad reviews of new computers, shoes, toys and other products at Amazon and other websites with consumer reviews have more impact than just helping shoppers decide if they'll buy the newest smartphone.

Bad reviews affect the stock price of the companies making those products, causing negative returns of as much as 8 percent, which could accumulate and spiral if the negative reviews aren't addressed, said Gerard J. Tellis, the Jerry and Nancy Neely Chair in American Enterprise and a professor of marketing, management and organization at the USC Marshall School of Business. The risk of negative chatter peaks about four days after it is posted online.

Tellis and former doctoral candidate Seshadri Tirunillai (now an assistant professor at the University of Houston) are publishing their study in the academic journal Marketing Science on how online chatter -- or user-generated content -- can predict stock market returns a few days ahead of time.

They beat the S&P 500 index by 8 percent in a hypothetical investment strategy by buying stocks on positive chatter and short-selling them on negative chatter. The Internet may be a black hole of many opinions, but those opinions can matter when it comes to reviewing products.

"The chatter on the Web is not cheap talk, it's valuable talk," Tellis said in an interview.

Negative reviews affected stock prices and trading volume the most, the study found. Negative chatter could erode about $1.4 million from the average market capitalization in the short term and $3.3 million over the 15 days following the chatter.

Negative opinions may have more of an impact than positive opinions for several reasons, the study found, including that positive information may be suspect, negatives may have more informative content than positives and losses loom larger than gains.

The study looked at 15 brands across six markets from June 2005 to January 2010: personal computing, cellular phones, personal digital assistants or smartphones, footwear, toys and data storage. A total of 347,628 consumer reviews and product ratings from the most popular websites for such reviews -- Amazon.com, Epinions.com, and Yahoo Shopping -- were studied.

Instead of just passively seeking information online, product reviews allow consumers to actively share their experiences, extending the typical word-of-mouth that helps sell things. An estimated 95.3 million people wrote online chatter in 2010, and 131.4 million people read the reviews.

Along with the investing opportunities, the study's results are important for product managers to gauge the performance of their brands and products through hourly and daily chatter, far ahead of infrequent sales and earnings reports.

Things can be done to combat negative chatter. A 1 percent increase in advertising expenditures increases chatter by .1 percent and decreases negative chatter by .19 percent, the study found. New product announcements have a positive impact on chatter on digital products such as cell phones and computers that online consumers are more responsive to, but not so much for toys and footwear.

Whether it's a faulty iPhone antenna, service problems at Dell or a guitar being broken by United Airlines, if a company's first reaction is denial, it likely won't help a stock price gain value.

"Denying is the bad way to go," Tellis said. "Admission, apology and correcting it are the best way to go."

The voice of the masses is loud and clear online, especially in what they say about what they consume.

"If it was uninformed talk it would not be leading the stock market," Tellis said.


Story Source:

The above story is based on materials provided by University of Southern California. Note: Materials may be edited for content and length.


Journal Reference:

  1. S. Tirunillai, G. J. Tellis. Does Chatter Really Matter? Dynamics of User-Generated Content and Stock Performance. Marketing Science, 2012; 31 (2): 198 DOI: 10.1287/mksc.1110.0682

Cite This Page:

University of Southern California. "Online chatter affects stock returns." ScienceDaily. ScienceDaily, 19 April 2012. <www.sciencedaily.com/releases/2012/04/120419153845.htm>.
University of Southern California. (2012, April 19). Online chatter affects stock returns. ScienceDaily. Retrieved July 29, 2014 from www.sciencedaily.com/releases/2012/04/120419153845.htm
University of Southern California. "Online chatter affects stock returns." ScienceDaily. www.sciencedaily.com/releases/2012/04/120419153845.htm (accessed July 29, 2014).

Share This




More Computers & Math News

Tuesday, July 29, 2014

Featured Research

from universities, journals, and other organizations


Featured Videos

from AP, Reuters, AFP, and other news services

Teen's Phone Ignites Under Her Pillow; How Real Is The Risk?

Teen's Phone Ignites Under Her Pillow; How Real Is The Risk?

Newsy (July 28, 2014) A Texas teen's Samsung phone apparently ignited while she slept, but what was the real problem here? Video provided by Newsy
Powered by NewsLook.com
Google's Next Frontier: The Human Body

Google's Next Frontier: The Human Body

Newsy (July 27, 2014) Google is collecting genetic and molecular information to paint a picture of the perfectly healthy human. Video provided by Newsy
Powered by NewsLook.com
Cellphone Unlocking Bill Clears U.S. House, Heads to Obama

Cellphone Unlocking Bill Clears U.S. House, Heads to Obama

Reuters - US Online Video (July 27, 2014) Congress gets rid of pesky law that made it illegal to "unlock" mobile phones without permission, giving consumers the option to use the same phone on a competitor's wireless network. Mana Rabiee reports. Video provided by Reuters
Powered by NewsLook.com
Congress OKs Unlocking Phones From Carriers

Congress OKs Unlocking Phones From Carriers

Newsy (July 26, 2014) A bill legalizing "unlocking," or untethering a phone from its default wireless carrier, has passed Congress and is expected to be signed into law. Video provided by Newsy
Powered by NewsLook.com

Search ScienceDaily

Number of stories in archives: 140,361

Find with keyword(s):
Enter a keyword or phrase to search ScienceDaily for related topics and research stories.

Save/Print:
Share:

Breaking News:
from the past week

In Other News

... from NewsDaily.com

Science News

Health News

Environment News

Technology News



Save/Print:
Share:

Free Subscriptions


Get the latest science news with ScienceDaily's free email newsletters, updated daily and weekly. Or view hourly updated newsfeeds in your RSS reader:

Get Social & Mobile


Keep up to date with the latest news from ScienceDaily via social networks and mobile apps:

Have Feedback?


Tell us what you think of ScienceDaily -- we welcome both positive and negative comments. Have any problems using the site? Questions?
Mobile: iPhone Android Web
Follow: Facebook Twitter Google+
Subscribe: RSS Feeds Email Newsletters
Latest Headlines Health & Medicine Mind & Brain Space & Time Matter & Energy Computers & Math Plants & Animals Earth & Climate Fossils & Ruins