Market influencers may temporarily sway the financial landscape, yet their impact is transient.
In the digital age, the influence of social media personalities, or influencers, extends beyond the realm of fashion and lifestyle. A growing body of research indicates that influencer posts about companies can drive stock trading volume and volatility, although they do not typically lead to abnormal stock returns.
A study published in European Financial Management found that strongly-worded posts by mega influencers, such as Kim Kardashian, can impact a company's stock returns by as much as 0.5% the following day. However, the influence of these posts tends to be short-lived, with cumulative abnormal return effects for the company becoming insignificant after just four days.
Researchers analysed over 16 million Instagram posts by mega influencers, focusing on two variables: abnormal sentiment and the number of comments the posts attracted. They used the Bloomberg News Heat index to measure institutional investors' attention and Wikipedia Views to gauge how much attention retail investors paid to a particular post about a company.
The study reveals that mega influencers only marginally change institutional investors' attention and have relatively low engagement rates per follower compared to nano influencers. This limited engagement and trust from followers may explain the short-lived impact on stock returns.
Short-form videos, such as Instagram Reels and TikTok videos, generate more impressions and engagement, enhancing the immediate impact of an influencer's post. However, the study suggests that the effect fades as market rationality and other information sources override the initial influencer-driven sentiment, especially when the engagement is low relative to reach.
Companies should be cautious when collaborating with influencers, as the potential risks outweigh the benefits. In two recent IPOs, firms listed influencers as a stock market listing risk factor in their offering documents. Mega influencer Kim Kardashian paid a $1.26 million fine to the US Securities and Exchange Commission in 2022 for advertising a crypto company's tokens without disclosing that the post was sponsored.
The authors of the study advise that while an influencer marketing strategy can bring substantial benefits, it also poses risks. They suggest that the effect is short-lived due to the involvement of noise traders, who are more likely to make trading decisions based on emotions, market rumours, and social media posts.
In conclusion, the impact of mega influencers on a company's stock returns tends to be short-lived but can be significant in the immediate aftermath. While the broad reach of mega influencers provides initial market impact, the lack of deep, sustained engagement and trust limits the longevity of influence on stock returns. Companies should approach influencer collaborations with caution, considering factors such as engagement rate, authenticity, and campaign amplification to mitigate potential risks and maximise returns.
- The study published in European Financial Management suggests that strongly-worded posts by mega influencers, such as Kim Kardashian, can impact a company's stock returns.
- Researchers analyzed over 16 million Instagram posts by mega influencers and found that these posts have a limited impact on institutional investors' attention compared to nano influencers.
- Short-form videos, such as Instagram Reels and TikTok videos, generate more impressions and engagement, enhancing the immediate impact of an influencer's post on stock returns.
- Companies should approach collaborations with influencers cautiously, considering factors such as engagement rate, authenticity, and campaign amplification to mitigate potential risks and maximize returns.
- In two recent IPOs, firms listed influencers as a stock market listing risk factor, and mega influencer Kim Kardashian paid a fine for advertising a crypto company's tokens without disclosing that the post was sponsored.
