The effect of temporal variation of prelaunch expectations on stock market response in the motion picture industry

Abstract

This research provides novel insights into the marketing-finance literature by shedding new light on the association between the temporal variation of prelaunch expectations of a new product's market performance and postlaunch firm value. We establish the nature of this relationship from theoretical underpinnings of psychological tendencies such as reference dependence and recency effect. Drawing from the emerging literature on crowdsourced earnings forecasts, we use crowdsourced expectations provided by a prediction market as a proxy for the market's expectations. The results show that two varying patterns of expectations play a critical role in driving postlaunch firm value. Specifically, the last-moment variation of prelaunch expectations (i.e., last-moment increase or decrease) is negatively related to firms' postlaunch stock price response, while the overall expectation level (i.e., high vs. low mean level) moderates the negative relationship between the last-moment variation of expectations and firm value.