Placebo in the random walk of stock price: Momentum effect of corporate site visits

Abstract

Using a unique database of corporate site visits (CSVs) to listed firms in China, we document the daily cumulative abnormal returns (CARs) around site visit events. Based on the performance of CARs before CSVs, we construct a CSV-momentum strategy that involves buying stocks with past winning CSVs and selling stocks with past losing CSVs. We find that the CSV-momentum strategy can generate significant CARs. Furthermore, we propose an explanation of momentum based on the random walk of stock prices over time. The results indicate that the placebo effect of CSVs reduces the accumulated uncertainty in the random walk of stock prices, providing a proper explanation for the momentum effect. In comparison to previous research, our study expands on prior work on CSVs and momentum effects. Moreover, we offer an innovative explanation of momentum formation from the perspective of an information placebo, providing valuable insights for investors into firm-specific information disclosure events.