When actress Anne Hathaway makes headlines, the stock price for Warren Buffett’s Berkshire Hathaway rises, at least that’s what anecdotes from popular media would lead you to believe.
As this year’s Academy Awards aired, students in professor Felix Meschke’s Investment Theory and Application class investigated the “Hathaway Effect.”
Their task was to analyze whether financial trading algorithms can be tricked by irrelevant news and information.
Students sought to uncover if news coverage of Anne Hathaway was associated with systematic effects on Berkshire Hathaway stock.
Meschke’s class gathered stock data from Yahoo Finance and data from Google Trends to measure media attention to Anne Hathaway, Berkshire Hathaway and Warren Buffett.
Their analysis focused on whether stock returns, volume or volatility was significantly affected.
From there, students performed regression analysis to assess statistical significance and discussed the implications of their findings.
In contrast to the anecdotal evidence reported in popular media, Meschke says the class did not find systematic evidence that stock prices or stock volatility differed on days where Anne Hathaway was in the news.
However, he says, the groups found news coverage of Anne Hathaway correlates with higher trading volume in Berkshire Hathaway’s stock.
But does this correlation illustrate a larger trend?
To generate profits from active trading, Meschke says, investors need to find mispriced securities. “There is no shortage of stories about supposedly profitable investment strategies,” he says, “yet a large literature suggests that financial markets are fairly efficient.”
It is difficult to beat the market after accounting for risk, taxes and transaction costs, Meschke adds.
He says the Hathaway case provides students an opportunity to evaluate the claim that Berkshire Hathaway’s stock return can reflect news that is completely unrelated to the company.
“To what extent do financial markets accurately reflect all available information?” he asks. “This is one of the key questions in finance.”