The new study published in the journal Financial Management claims that daily box office earnings via the sales of movie theatre tickets can accurately predict stock market returns – despite there being no obvious relation between the two.
Stock market performance has been predicted based on quarterly and monthly consumption data, but according to researchers if box office earnings are used, they provide a much more timely and relevant data for decision-makers in the financial markets.
According to researchers, they were able to show that U.S. box office earnings have a high value when it comes to the inherent information value and using that data, they can predict returns up to five days. Researchers say they have evidence that daily consumption carries new, timelier and relevant information for stock markets.
Researchers tested the hypothesis that a daily consumption variable – box office earnings – has implications for the stock market. Based on data available from 1997 to 2019, the authors found that daily measures predict future aggregate stock market returns significantly and positively for up to six days using the Center for Research in Security Prices value-weighted market excess return and for up to five days using the Standard and Poor’s 500 market return. The results demonstrate that box office earnings create upward pressure on stock prices for at least up to five days.
According to researchers, box office earnings can be interpreted as early signs of spending and that their evidence may represent a profitable market timing strategy that investors could potentially exploit.
The link between money spent on movie theatre tickets and market returns suggests that box office earnings capture consumption among investors and can be used to create potentially profitable trading strategies. This is the first study exploiting daily consumption data in a stock market context.