Miao-Ling Chen

The effects of advertising on retail price competition under vertical restraint: A Japanese case

Abstract This paper investigates the impact of vertical restraint on advertising effects. A model is postulated in which a manufacturer can influence retail price competition through advertising by increasing brand penetration, thus reducing retail price competition, and at the same time by increasing the promotional pricing of retailers, thus intensifying retail price competition. Moreover, vertical restraint will influence the effects of advertising on retail price competition by strengthening the relationship between brand penetration and retail price competition, and by weakening the relationship between advertising and promotional pricing of retailers. Consequently, retail price competition will be reduced. Empirical evidence from cross-sectional data from Japan supports our hypotheses that retail price competition is a function of not only the effects of advertising on brand penetration and promotional pricing, but also the influence of vertical restraint on advertising effects.

Investor Sentiment, Customer Satisfaction and Stock Returns

Purpose: This study aims to investigate whether and how various sentiments affect the stock market’s reaction to the ACSI (American Customer Satisfaction Index) information.Design/methodology/approach: The portfolio approach with time-varying risk factor loadings and the asset-pricing models are borrowed from the finance literature to investigate the ACSI-performance relationship. A direct sentiment index is employed to examine how investors’ optimistic, neutral and pessimistic sentiments affect the aforementioned relation.Findings: This paper finds that customer satisfaction is a valuable intangible asset that generates positive abnormal returns. On average, investing in the Strong-ACSI Portfolio is superior to investing in the market index. Even when the stock market holds pessimistic beliefs, investors can beat the market by investing in firms that score well on customer satisfaction. The outperformance of our zero-cost long-short ACSI strategy also confirms the mispricing of ACSI information in pessimistic periods. Research limitations/implications: Findings are limited to firms covered by the ACSI data.Practical implications: Finance research has further documented evidence of the stock market under-reacting to intangible information. For example, firms with higher research and development expenditures, advertising, patent citations, and employee satisfaction all earn superior returns. Literature also proves that investors efficiently react to tangible information, whereas they undervalue intangible information. In summary, combining our results and those reported in the literature, customer satisfaction is value-relevant for both investors and firm management, particularly in pessimistic periods.Originality/value: This study is the first to investigate how sentiment affects the positive ACSI-performance relationship, while considering the time-varying property of risk factors. This study is also the first to show that ACSI plays a more important role during pessimistic periods. This study contributes to the growing literature on the marketing-finance interface by providing a better understanding of how investor emotional states affect their perceptions and valuations of customer satisfaction.

When is money likely to be smart? Evidence from mutual fund investors in Taiwan

ABSTRACT Past behavioural research has provided evidence that fund investors have the ability to predict fund performance; this is called the smart money effect. In this study we examine whether the smart money effect exists in the Taiwanese mutual fund market. Specifically, we investigate whether the smart money effect appears across UP and DOWN markets and whether this effect persists over time. Consistent with the literature, we find that the smart money effect exists over our sample period. Moreover, after categorizing the market states as either UP or DOWN markets, our evidence shows a significant smart money effect only following DOWN markets but not following UP markets. According to behavioural theories, bad market states evoke negative affective states in investors, so negatively affected investors may rely less on the use of heuristics and become more careful and logical in their investment decisions. This paper infers that the existence of a smart money effect after DOWN markets occurs because investors in negative emotional states are likely to use more detailed information processing in their decision making.

The Advertising Spillover Effect: Implications for Mutual Fund Families

Prior studies have found that a firms advertising for one of its products can spill over and enhance sales for other existing products with the same brand name. This study examines whether the advertising spillover effect exists in the mutual fund market. The evidence shows that advertised funds in a fund family can significantly increase the cash flows of other higher-performing funds in the same family but not far those funds with middle and lower performance. For the fund familys advertising, results indicate that fund familys advertising can significantly increase the family cash flows for large fund families but not for those small fund families.

The effects of advertising on resale price maintenance

This research combines the market power and market competition perspectives on advertising, under the framework of a generalized theoretical model in minimum resale price maintenance (RPM), in order to investigate the effects of advertising on RPM using the real options approach. The effects of advertising on retail price will impact the value of RPM, further, influence the incentive of manufacturers to impose RPM. Through brand penetration and promotional pricing effects, advertising is likely to influence RPM under the condition of retail price competition. When the brand penetration effect is dominant, advertising will discourage manufacturers from imposing RPM. Advertising will encourage manufacturers to impose RPM when the promotional pricing effect is dominant. RPM not only substitutes advertising, but also complements advertising.

A model of optimal dynamic asset allocation in a Value-at-Risk framework

This study focuses on the problem of investors in optimising dynamic asset allocation to maximise expected utility under the value-at-risk (VaR) constraint. Although Basak and Shapiro presented this topic, they assumed a complete market and employed the martingale approach to determine a dynamic asset allocation strategy. However, a complete market does not exist in the real world and the martingale approach is not suitable for portfolio selection. Consequently, this study relaxes these limitations and firstly provides a solving method to derive the dynamic asset allocation under the VaR constraint. A simple case and a general case of derivation of optimal dynamic asset allocation are explored. A continuous probability distribution also can be approximated by the discrete probability distribution discussed in this study.

Advertising, Research and Development, and Capital Market Risk: Higher Risk Firms versus Lower Risk Firms

This study examines how a firms advertising and RD investors could exert their influence on firms senior executives to make decisions that are beneficial to stock returns.

Asymmetric effect of advertising on the Chinese stock market

ABSTRACT In this paper, we investigate whether investor attention to advertising has an asymmetric effect on Chinese stock returns by using a multivariate Markov switching model with time-varying regime transition probabilities. Using the Chinese stock market as a setting, we obtain lagged conditional volatility from generalized autoregressive conditional heteroskedasticity (GARCH) for modelling the time-varying transition probabilities of the regime-switching process to capture changes in the market regime. Our evidence documents that the high advertising portfolio does earn higher abnormal return than the low advertising portfolio in low-volatility periods. In high-volatility periods, however, the abnormal return is insignificant when the firm increases advertising spending. Our results support the behavioural model argument that in high-volatility period, advertising information diffuses slowly due to cognitive dissonance. Thus, the effect of advertising on stock returns is asymmetric, and it shows statistical significance in low-volatility periods.

Advertising, Risk Tolerance and Investor’s Behaviors: Theory and Evidence from the Mutual Fund Industry

This study modifies the risk tolerance parameter in cumulative prospect theory (CPT) as a risk tolerance function of advertising to explain investors’ behaviors under uncertainty environment. Our model indicates that advertising would influence investors’ redemptions because advertising reduce the speed of CPT investors’ diminishing marginal sensitivity to their monetary outcomes when moving away from the reference point. Using mutual fund cash flows data set, this study finds that advertising changes the pattern of existing asymmetric redemption-performance relation, showing that investors are less willing to sell winning funds with high fund family advertising than those with low fund family advertising, and are more reluctant to redeem losing mutual funds with high fund family advertising than those with low fund family advertising.

How Do Web Search Activity and Financial Media Coverage Affect Asset Pricing

This study aims to investigate the impact of the Internet and the financial media on capital markets in terms of investor attention. Evidence shows that firms receiving more investor attention from the Internet possess higher stock returns. Larger firms are covered by more news stories than are smaller firms. However, medium-sized firms are found the most sensitive to the Internet and the financial media. Both web search activity and media coverage significantly affect stock returns, but their impacts are insignificant during financial crises. The mediation analysis indicates that the Internet and the financial media capture investor attention from different groups.