Advertising's Financial Market Outcomes

Abstract

Using an adjusted Glosten-Milgrom model, I show that, theoretically, advertising can increase information asymmetry in the financial markets. Using high frequency intra-day tick data surrounding Super Bowl Commercials, I then show, empirically, that advertising positively affects informed trading and reduces information efficiency. Moreover, it has a negative impact on stock liquidity. Advertising changes the buy-sell imbalance of different trade size groups, generating more large sell orders, which indicates that institutional investors are net sellers. I also find that there is a decline in cumulative abnormal returns after the advertising event, which is correlated with the rise in informed trading.