Celebrities and The Stock Market

Annabel Yenson

This piece won the First-Year Prize in the Inaugural UNIT UniMelb Writing Competition. Open to all UNIT UniMelb members, the Competition aims to give students the opportunity to develop their financial knowledge, writing and communication skills by developing a 900-word piece on any economic, financial, trading or investing topic. The Overall Winner, Runner Up and First-Year Prize winner receive publication on the UNIT UniMelb website and an interview to join the UNIT Committee as a Research Analyst. Make sure to also check out the articles of the Overall Winner and Runner Up.


The tea is hot, and so is the stock market.

It would be fanciful to say that a company’s share price can single-handedly be affected by the actions of a celebrity (excluding the South Korean markets). Rather, celebrities can be regarded as the voice of the consensus, who draws attention towards a company’s issue, and can even push the shareholders’ confidence in the stock to its breaking point. Historically, the share price has always recovered after a celebrity has sent the stock into the red. However, one must be aware of the implications that negative press will have on the public’s outlook on the company, and how it will make its way back to the share market and eventually, the share price.

The Kardashian Krash

The Kardashians may have spread their influence among the entertainment industry, but even the financial sector has not proven itself immune against their publicity stunts. In 2018, Kylie Jenner’s unsuspecting tweet saw Snap Inc fall 6% after saying that she no longer uses the app. Admittedly, the $1.3 billion dollar loss in company value is not the work of one tweet, but rather was the culmination of criticism due to Snapchat’s redesign of the app. Nevertheless, by being such a big social media influencer who has millions of followers who are desperate to emulate her behaviour and views, Jenner’s tweet can be credited as the breaking point where shareholder confidence umbled.

Kanye West’s presidential bid could even have effects on the ASX, which usually follows the American markets. Presidential elections normally have macroeconomic effects on the CBOE Volatility Index and ETFs, as candidate’s policies and promises may affect international relations, trade policies and the federal budget. It is unlikely that West’s campaign will be successful, but his rallies have already affected one stock’s share price.

West’s comments made during his first presidential rally saw Gap Inc’s shares drop almost 6% ($12.64 to a low of $11.92 USD). This all occurred when the singer publicly declared that he would abandon his Yeezy brand deal with Gap if he were not placed on the company’s board. This came less than a month after Gap’s share price jumped as high as 42% when the partnership was first announced. Now, the drop of almost $0.70 cannot be purely attributed to the actions of one Kanye. It must be understood that the effects of COVID-19 had business’ activities plummeting to new lows, making its $136 million YTD negative cash flow look laughable against its current quarterly loss of $932 million. The closure of 90% of its global stores would put significant strain on the floundering company, and yet again was it another member of the Kardashian clan that pushed the stock over
the edge.

Korean Idols

Converse to the American markets and the ASX, stocks listed on the KOSDAQ are more volatile against the actions of their celebrities (dubbed idols). These idol’s effects on the share market are none better displayed in the 800% jump in the share price of the semiconductor company, DI Corp. The cause? Rather than looking at the earnings and profits of the company, a slew of keen investors decided to buy the stock purely on the basis that the company was owned by Psy’s father. Psy’s viral sensation of 2012: “Gangnam Style” followed by his equally popular 2013: “Gentlemen”. On both releases, DI Corp’s stock leaped from ₩1,605 to ₩11,400 in 2012 ($1.87 to $13.31 AUD), and again ₩4,675 to ₩12,900 in 2013 ($5.46 to $15.06 AUD). Despite having no underlying reason for both jumps, the stock gained publicity through association to Psy, and by entering the mainstream knowledge, gained value in the company.

Even idol’s relationship statuses can prove to be volatile with its effect on the share price. One prime example is Cube Entertainment Inc. In August 2018, two of the company’s popular Korean idols were revealed to be dating, and on that same day, the share price dropped roughly 5.24%, from ₩2,662 to ₩2,530 ($3.10 to $2.95 AUD). This stock’s fluctuation stems from the business model of creating a cult following, whereby dating scandals directly go against the carefully crafted image of the star’s desirability. This provides a different take on how the power of social media and public sentiment towards a star can seep through the share market, to the point where the publicity that is indirectly acquired can have momentous effects on the company’s stock. However, whilst this is evident in Korean stocks, western stock exchanges are more impervious to celebrity scandals.

The recent surge of people to the share market is a result of the current Coronavirus pandemic, coupled with the skyrocketing levels of job loss and recession. Robinhood traders jump at any chance of news from a company, as illustrated in Kodak over the past week. Most of the trading platform’s demographic are young millennials, inexperienced in shares and eager to flood the market. But where is this sudden newfound confidence coming from? The economic factors are obvious, unemployment and income loss, mixed with economic downturn has brewed itself a perfect storm.

Nonetheless, the power of social influence must also be considered, such as when Kim Kardashian flashes her stock portfolio earnings. In this case, the everyday person must wonder how financially inexperienced people can have easy success on the share market, and what is to stop everyone else from doing the same?


References

Kim, Y. Han (Andy) and Jung, Hosung, Investor PSY-chology Surrounding ‘Gangnam Style’ (February
20, 2016). Pacific-Basin Finance Journal (2016), Volume 37, 23–34., Available at SSRN:
https://ssrn.com/abstract=2292577 or http://dx.doi.org/10.2139/ssrn.2292577

Sources

https://money.cnn.com/2018/02/22/technology/snapchat-update-kylie-jenner/index.html

https://finance.naver.com/item/main.nhn?code=003160#

https://finance.naver.com/item/main.nhn?code=182360https://www.fool.com/investing/2020/06/29/stock-market-today-craze-for-kim-and-kanye-lifts-c.aspx

https://www.fool.com/investing/2020/06/29/stock-market-today-craze-for-kim-and-kanye-
lifts-c.aspx

https://www.fool.com.au/2020/07/22/kanye-west-asx-shares-for-his-us-presidential-campaign/

https://www.forbes.com/sites/elanagross/2020/07/20/gap-shares-fall-nearly-6-after-kanye-west-threatens-to-walk-away-from-yeezy-gap-deal/#6dc3e1d063df

https://www.nasdaq.com/articles/robinhood-millennial-obsession-2018-08-23


Disclaimer: The views expressed in this article are solely that of the author’s, and do not necessarily reflect the position of UNIT nor the University of Melbourne. The advice given is general in nature and does not consider an individual’s personal financial circumstance. Transacting off this information is done so at one’s own risk, and individuals are encouraged to consult a finance professional before making investment decisions based off of this article.

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