Being Innovative Pays Off, But When?

Alejandro Lopez-Lira, Finance, The Wharton School, and Roberto Gómez Cram, London Business School

Abstract: The research objective is to determine how quickly product innovation translates into higher stock market valuations. The novelty in the research approach is using online consumer reviews on websites including Amazon, eBay; combined with stock market data. We conjecture that as the popularity of these websites has increased, so has the amount of information being produced. If investors do not keep pace with the increasing scale and scope of consumer reviews, we might see that a large part of this information is only slowly incorporated into future stock prices, which can condition firms’ operations, and product development. To the best of our knowledge, this would be the first paper to study the timing and impact in the stock market price of product innovation using online consumer reviews.