Erik Mayer at Rice University in Texas shows that US companies which sponsor televised college football games see their share prices rise significantly in risk-adjusted terms in the four days after the matches, with sponsors of higher-profile games seeing bigger price rises.
These gains don't come because sponsorship earns the company bigger sales; Professor Mayer found it has "no measurable effect" upon sales or profits. Instead, they happen because the sponsorship attracts investors' attention to the company which leads to buying. Such buying is - for many - unprofitable; Professor Mayer shows that prices fall in the second week after the game.
This tells us that investors sometimes buy stocks not because they have fundamental information about future profits but simply because some shares attract their attention. This is consistent with earlier work by economists who have found that investors trade more in shares whose names begin with an earlier letter of the alphabet and more in shares whose ticker symbol is a memorable word.
All this implies that it might be dangerous to buy a share after it has been in the news because we might be buying not upon genuine knowledge of its future prospects but simply because the news has attracted our attention to the stock.
There's one especially dangerous case of trading on attention rather than proper signals - the tendency to buy newly floated shares. On average, these do badly after the first day of trading. But investors tend to buy such stocks simply because the flotation has attracted lots of attention. Strictly speaking, the float should be a signal to avoid the stock - if well-informed owners are selling, why should you buy? - but investors ignore this signal and buy because of the buzz.
The message here is simple. Before buying anything, just ask: am I doing so because I know better than others that this stock has good prospects, or am I doing so because it has caught my attention? If the answer's the latter, avoid it.
