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Stock market response to changes in movies’ opening dates

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Abstract

How does the market react to news regarding large uncertain projects? We analyze stock market reactions to information about changes in opening dates of movies, and present two main findings. First, we find systematic negative stock price responses to the scheduling changes we consider, suggesting that any changes are interpreted as bad news by the market. Second, we find that the market reaction is greater for movies with higher production costs, but is unrelated to subsequent box office revenues. This may point to a limited ability of the market to predict the box office performance of a movie, and to increased sensitivity of the market to cost effects, which are easier to forecast.

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Notes

  1. See Fama (1998) for a discussion of the many confounding issues involved in studies of long-term performance.

  2. See, for example, Bradley et al. (1988) and Andrade et al. (2001).

  3. In a related article, Elberse (2007) finds that there is no market reaction to announcements of star participation in movies. However, she also finds that in the Hollywood Stock Exchange prediction market, such announcements increase revenues by only three million dollars on average, which may not substantially affect the value of a large corporation. On the other hand, Joshi and Hanssens (2009) study arguably bigger events (movie releases and advertising campaigns) and find significant abnormal stock returns.

  4. As described in Einav (forthcoming), smaller switches (of several weeks) are largely done for strategic reasons, as part of the release date timing game played among studios. Larger switches, which often shift the movie from the audience it was designed to target, are mostly associated with production delays.

  5. Some studios have switched between being publicly and privately owned one or more times during the period we study, and so we cannot necessarily analyze all the announcements of a given studio. In addition, some studios have been sold by one public company to another (in some cases, another studio), and so we must keep track of ownership status as of the date of each announcement.

  6. We allow announcements from different companies on the same day, since it seems unlikely that there will be any correlation between the projects of different studios, especially as they often happen at the same time but involve different time periods.

  7. Cowan, Arnold R., Eventus software, version 7.6 (Cowan Research LC, Ames, Iowa 2003).

  8. See Fuller et al. (2002) for a discussion of event studies with frequent events. They use market-adjusted returns as we do here. Brown and Warner (1980, 1985) show that for calculating abnormal returns over short windows, this method works as well as the more complicated methods such as market model-based abnormal returns.

  9. The median is lower (see Table 1) since movie budgets and revenues are highly skewed, but it is still around 2.5% of net profits.

  10. As in Ravid (1999), Einav (2007), Palia et al. (2008), Goetzmann et al. (2009), and John et al. (2009).

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Acknowledgments

We thank Ron Sverdlove and Max Gulker for excellent research assistance, and participants in the Eighth Business and Economics Scholars Summit in Motion Picture Industry Studies at Fort Lauderdale for useful comments. Financial support from the National Science Foundation and the Stanford Institute for Economics and Policy Research (Einav) and from the Rutgers Business School Research Resources committee (Ravid) is gratefully acknowledged.

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Authors and Affiliations

  1. Department of Economics, Stanford University, Stanford, CA, USA

    Liran Einav

  2. NBER, Cambridge, MA, USA

    Liran Einav

  3. Rutgers Business School, Newark and New Brunswick, NJ, USA

    S. Abraham Ravid

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  1. Liran Einav
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  2. S. Abraham Ravid
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Correspondence to Liran Einav.

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Einav, L., Ravid, S.A. Stock market response to changes in movies’ opening dates. J Cult Econ 33, 311–319 (2009). https://doi.org/10.1007/s10824-009-9105-3

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