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Contribution Details

Type Working Paper
Scope Discipline-based scholarship
Title A new portfolio formation approach to mispricing of marketing performance indicators with an application to customer satisfaction
Organization Unit
Authors
  • David B Bell
  • Olivier Ledoit
  • Michael Wolf
Language
  • English
Institution University of Zurich
Series Name Working paper series / Department of Economics
Number 79
ISSN 1664-7041
Number of Pages 26
Date 2013
Abstract Text The mispricing of marketing performance indicators (such as brand equity, churn, and customer satisfaction) is an important element of arguments in favor of the financial value of marketing investments. Evidence for mispricing can be assessed by examining whether or not portfolios composed of firms that load highly on marketing performance indicators deliver excess returns. Unfortunately, extant portfolio formation methods that require the use of a risk model are open to the criticism of time-varying risk factor loadings due to the changing composition of the portfolio over time. This is a serious critique, as the direction of the induced bias is unknown. As an alternative, we propose a new method and construct portfolios that are neutral with respect to the desired risk factors a priori. Consequently, no risk model is needed when analyzing the observed returns of our portfolios. We apply our method to a frequently studied marketing performance indicator, customer satisfaction. Using various ways of measuring customer satisfaction, we do not find any convincing evidence that portfolios that load on high customer satisfaction lead to abnormal returns.
Official URL http://www.econ.uzh.ch/static/wp/econwp079.pdf
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Keywords Customer satisfaction, financial performance, long-short portfolio, mispricing, Preispolitik, Verbraucherzufriedenheit
Additional Information Revised version ; former title: "Reexamining possible mispricing of customer satisfaction"