Consumer reviews move markets

Researchers found that posting online product reviews can actually affect stock prices.
Written by Amy Kraft, Weekend Editor

If you've ever felt like nothing came of your effort to post an online comment about a consumer product, this article is for you.

Now researchers show that consumer reviews have an impact on stock markets.

Economists analyzed 350,000 online reviews of 15 brands of products including toys, shoes and computers. The software they used accounted for ratings given by the users of the site and also measured the tone of each of those ratings, careful to decipher the meaning of generic words and terms specific to the product being rated.

They found that having a lot of user comments, regardless of them being positive or negative, was a good indicator of a stock price increase. And they found negative comments had the most impact and could actually drive down stock prices.

"Bad reviews affect the stock prices of the companies making those products, causing negative returns of as much as 8 percent," Gerard T. Tellis, the Jerry and Nancy Neely Chair in American Enterprise and a professor of marketing management organization at the USC Marshall School of Business told Science Daily.

Researchers suggest that negative reviews may have more of an impact on consumers because the content is more informative. They also said people are more suspicious of positive reviews.

So although the Internet can seem like a black hole of opinions, those opinions sometimes matter.

"The chatter on the web is not cheap talk, it's valable talk," Tellis said.

Online Chatter Affects Stock Returns  [Science Daily]

Photo via flickr/Katrina.Tuliao

This post was originally published on Smartplanet.com

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