Disaggregated Sales and Stock Returns
Management Science, forthcoming
56 Pages Posted: 9 Jan 2017 Last revised: 29 Mar 2021
Date Written: October 12, 2020
Using transaction-level credit card spending from a large US financial institution, we show that disaggregated sales provide accurate and persistent signals of customer demand relevant to a firm’s stock pricing. After controlling for earnings and sales surprises, one inter-quintile increase in the adjusted customer spending during a firm’s fiscal quarter leads to 1.5 percentage points increase in the 60-day post-earnings-announcement CAR. The predictability concentrates in consumer-oriented firms, especially those relying more on indirect sales distribution channels. We also find a stronger return response to spending from high FICO score, high liquidity, and loyal customers. The transmission speed of disaggregated sales information is slower than that of the earnings information, and small firms or firms far from their end customers exhibit a more delayed price response. Finally, the return implications of adjusted customer spending extend to firms along the production chain.
Keywords: return predictability, informed investors, disaggregated sales, customer demand, credit cards, consumption, household finance, financial institution, big data
JEL Classification: D12, G14, H31
Suggested Citation: Suggested Citation