The Effect Of Consumer Reviews On Stock Returns:Evidence From The Video Game Industry

The amount of data created by humans is enormous.Reviews are left for every product listed online which many customers base their purchase decision on,and may impact the sales of a company.This paper analyzes the impact of consumer reviews on stock returns.The study will focus on the video game industry as video games are "experience goods":these are goods you need to try to be able to see the benefits.Most consumers of those products rely on consumer reviews,thus they make the reviews more relevant.In contrast to previous studies that only use ratings,I also incorporate the content of the review itself by transforming the text content into regressors using a Singular Value Decomposition of a matrix I derive from counting the frequency of words in the reviews.I use a fixed effects regression to analyze the impact of consumer reviews since I have a panel of video game publishing companies from 2005 to early 2018.I find that consumer reviews have additional information content which may explain stock returns,making them a useful tool for investors.