Abstract
In this paper we test whether a behavioral or a rational model is used in financial advertising. We run Granger-causality tests separately for risky and non-risky products advertising, finding that the behavioral model of advertising is supported when the ads of risky financial products and services are considered, while the rational model is true for the non-risky products ads. We ascribe this result to the dual process of reasoning operating at the level of the investor: when an investor evaluates the decision to buy risky financial products and services, he/she activates the automatic, rapid decision making process. Advertising companies anticipate this trait and implement an advertising strategy that responds to market trends, confirming the use of a behavioral model. Consistently we find that the stock index Granger-causes risky financial products ads. When non-risky financial products ads are considered, a slow and sequential process, operates, compatibly with a rational decision making process: advertising companies are aware of this and implement a strategy unrelated to the stock index. Coherently, no significant relationship is found between the stock index and non-risky financial products and services ads.
Highlights
Advertising is meant to convince people to make choices which favor the advertiser
Mullainathan et al (2008) test the behavioral versus the rational model of persuasion in a theoretical framework, exploring in particular the case of mutual funds advertising. They use the number and content of mutual funds advertising and find that advertisers provide data about past returns only when the stock market grows: returns are associated with the idea of grabbing an opportunity, which in down markets cannot be associated with any state of mind that leads to buying more financial products
Using the number of advertisements appeared in the most important Italian financial newspaper and magazine from January 2006 to the end of March 2015, we find support for our hypothesis, namely that the stock market precedes - Granger causes - investment in risky financial products and services ads, while there is no relations between the stock market and non-risky financial products and services ads
Summary
Advertising is meant to convince people to make choices which favor the advertiser. But how do advertisers choose the persuasion model that will prove successful? In the rational/traditional model of the advertiser’s behavior (Stigler, 1961, 1987), the advertising message conveys objective information that is useful to judge the product/service. They study the correlation between the content of advertising of mutual funds and the stock market index, considering mutual funds as a risky financial asset that should appeal to investors in periods of optimistic beliefs They find that the response of advertisers is related to the dynamics of stock returns as predicted by the behavioral model, finding a positive correlation between the growth of the stock market and the share of mutual funds ads promoting growth funds. More in general, Mullainathan et al (2008) test the behavioral versus the rational model of persuasion in a theoretical framework, exploring in particular the case of mutual funds advertising They use the number and content of mutual funds advertising and find that advertisers provide data about past returns only when the stock market grows: returns are associated with the idea of grabbing an opportunity, which in down markets cannot be associated with any state of mind that leads to buying more financial products. Even companies with positive past returns, decide to exclude this information from their advertising in negative stock market periods (Mullainathan et al, 2008)
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