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A new portfolio formation approach to mispricing of marketing performance indicators with an application to customer satisfaction


  • David R. Bell
  • Olivier Ledoit
  • Michael Wolf


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.

Suggested Citation

  • David R. Bell & Olivier Ledoit & Michael Wolf, 2012. "A new portfolio formation approach to mispricing of marketing performance indicators with an application to customer satisfaction," ECON - Working Papers 079, Department of Economics - University of Zurich, revised Dec 2013.
  • Handle: RePEc:zur:econwp:079

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    References listed on IDEAS

    1. Joseph P. Romano & Michael Wolf, 2005. "Stepwise Multiple Testing as Formalized Data Snooping," Econometrica, Econometric Society, vol. 73(4), pages 1237-1282, July.
    2. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-858, May.
    3. Robert Jacobson & Natalie Mizik, 2009. "—Customer Satisfaction-Based Mispricing: Issues and Misconceptions," Marketing Science, INFORMS, vol. 28(5), pages 836-845, 09-10.
    4. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    5. Andrews, Donald W K & Monahan, J Christopher, 1992. "An Improved Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimator," Econometrica, Econometric Society, vol. 60(4), pages 953-966, July.
    6. Ledoit, Olivier & Wolf, Michael, 2003. "Improved estimation of the covariance matrix of stock returns with an application to portfolio selection," Journal of Empirical Finance, Elsevier, vol. 10(5), pages 603-621, December.
    7. Romano, Joseph P. & Shaikh, Azeem M. & Wolf, Michael, 2008. "Formalized Data Snooping Based On Generalized Error Rates," Econometric Theory, Cambridge University Press, vol. 24(02), pages 404-447, April.
    8. Lewellen, Jonathan & Nagel, Stefan, 2006. "The conditional CAPM does not explain asset-pricing anomalies," Journal of Financial Economics, Elsevier, vol. 82(2), pages 289-314, November.
    9. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    10. Christopher Ittner & David Larcker & Daniel Taylor, 2009. "—The Stock Market's Pricing of Customer Satisfaction," Marketing Science, INFORMS, vol. 28(5), pages 826-835, 09-10.
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    More about this item


    Customer satisfaction; financial performance; long-short portfolio; mispricing;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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