A Non-Random Walk Down Hollywood Boulevard: Celebrity Deaths and Investor Sentiment

Media communication scholars document that the general public exhibits a psychological attachment to celebrities and may emotionally react to their death. In this paper, I take advantage of this insight and I adopt an event study approach to test the impact of exogenous and incidental negative affect (i.e. grief, proxied by the death of Hollywood Walk of Fame celebrities) on people’s willingness to invest in risky assets (proxied by the daily performance of the U.S. stock market). Using a sample of 1,374 celebrity deaths over the period 1926-2009 and controlling for seasonalities, economic/environmental factors, and market liquidity, I find that the death of popular and beloved celebrities is immediately followed by a 16 basis point increase in stock returns, which is consistent with a rise in the net demand for risky instruments. I also find evidence that the size of this celebrity-death effect is increasing in the popularity/media coverage of the celebrity in question, and is larger for stocks that are more affected by investor sentiment. Overall, my findings are consistent with the lab research on the affect management model, which maintains that incidental negative affect promotes risk-prone behavior.