IDEAS home Printed from https://ideas.repec.org/a/eee/empfin/v67y2022icp271-287.html
   My bibliography  Save this article

The stock market tips

Author

Listed:
  • Uzmanoglu, Cihan

Abstract

We investigate the influence of public companies on their local economies through the spending of their employees on local goods and services. Using the taxicab industry in New York City as a laboratory, we find that tips paid for taxis taken near firms’ headquarters are higher on the days the firms’ stock returns are higher. This effect is short-lived, is stronger for firms offering greater stock-based compensation, and varies across industries. In addition, tipping increases gradually following the initial public offerings (IPOs) of firms, and this increase becomes significant at the end of the IPO lock-up period. Idiosyncratic stock returns are more strongly associated with tipping than are aggregate stock market or industry returns, suggesting that the increase in tipping with stock returns is due to firm-level factors. The number of taxis taken near firms’ headquarters, too, increases with their stock returns. Additional tests suggest that these findings are non-spurious.

Suggested Citation

  • Uzmanoglu, Cihan, 2022. "The stock market tips," Journal of Empirical Finance, Elsevier, vol. 67(C), pages 271-287.
    • Handle: RePEc:eee:empfin:v:67:y:2022:i:c:p:271-287
    DOI: 10.1016/j.jempfin.2022.04.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0927539822000354
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jempfin.2022.04.002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-795, December.
    2. Edmans, Alex & Fernandez-Perez, Adrian & Garel, Alexandre & Indriawan, Ivan, 2022. "Music sentiment and stock returns around the world," Journal of Financial Economics, Elsevier, vol. 145(2), pages 234-254.
    3. Ofer Azar, 2005. "Who do we tip and why? An empirical investigation," Applied Economics, Taylor & Francis Journals, vol. 37(16), pages 1871-1879.
    4. Matt Parrett, 2006. "An Analysis of the Determinants of Tipping Behavior: A Laboratory Experiment and Evidence from Restaurant Tipping," Southern Economic Journal, John Wiley & Sons, vol. 73(2), pages 489-514, October.
    5. Shlomo Benartzi, 2001. "Excessive Extrapolation and the Allocation of 401(k) Accounts to Company Stock," Journal of Finance, American Finance Association, vol. 56(5), pages 1747-1764, October.
    6. Thaler, Richard H, 1990. "Saving, Fungibility, and Mental Accounts," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 193-205, Winter.
    7. Case Karl E. & Quigley John M. & Shiller Robert J., 2005. "Comparing Wealth Effects: The Stock Market versus the Housing Market," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-34, May.
    8. Matt Parrett, 2006. "An Analysis of the Determinants of Tipping Behavior: A Laboratory Experiment and Evidence from Restaurant Tipping," Southern Economic Journal, John Wiley & Sons, vol. 73(2), pages 489-514, October.
    9. Melville Saayman & Andrea Saayman, 2015. "Understanding Tipping Behaviour — An Economic Perspective," Tourism Economics, , vol. 21(2), pages 247-265, April.
    10. Quang Nguyen & Colin Camerer & Tomomi Tanaka, 2010. "Risk and Time Preferences Linking Experimental and Household Data from Vietnam," Post-Print halshs-00547090, HAL.
    11. Martin Lettau & Sydney C. Ludvigson, 2004. "Understanding Trend and Cycle in Asset Values: Reevaluating the Wealth Effect on Consumption," American Economic Review, American Economic Association, vol. 94(1), pages 276-299, March.
    12. David Hirshleifer & Tyler Shumway, 2003. "Good Day Sunshine: Stock Returns and the Weather," Journal of Finance, American Finance Association, vol. 58(3), pages 1009-1032, June.
    13. Ge, Qi, 2018. "Sports sentiment and tipping behavior," Journal of Economic Behavior & Organization, Elsevier, vol. 145(C), pages 95-113.
    14. Nikola Dvornak & Marion Kohler, 2007. "Housing Wealth, Stock Market Wealth and Consumption: A Panel Analysis for Australia," The Economic Record, The Economic Society of Australia, vol. 83(261), pages 117-130, June.
    15. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    16. Amos Tversky & Daniel Kahneman, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1039-1061.
    17. Conlin, Michael & Lynn, Michael & O'Donoghue, Ted, 2003. "The norm of restaurant tipping," Journal of Economic Behavior & Organization, Elsevier, vol. 52(3), pages 297-321, November.
    18. Finer, David Andrew, 2018. "What Insights Do Taxi Rides Offer into Federal Reserve Leakage?," Working Papers 273, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    19. Richard H. Thaler, 2008. "Mental Accounting and Consumer Choice," Marketing Science, INFORMS, vol. 27(1), pages 15-25, 01-02.
    20. Martha Starr-McCluer, 2002. "Stock Market Wealth and Consumer Spending," Economic Inquiry, Western Economic Association International, vol. 40(1), pages 69-79, January.
    21. Huberman, Gur, 2001. "Familiarity Breeds Investment," The Review of Financial Studies, Society for Financial Studies, vol. 14(3), pages 659-680.
    22. Sydney C. Ludvigson & Charles Steindel, 1999. "How important is the stock market effect on consumption?," Economic Policy Review, Federal Reserve Bank of New York, vol. 5(Jul), pages 29-51.
    23. David Hirshleifer, 2001. "Investor Psychology and Asset Pricing," Journal of Finance, American Finance Association, vol. 56(4), pages 1533-1597, August.
    24. Rui Albuquerque, 2012. "Skewness in Stock Returns: Reconciling the Evidence on Firm Versus Aggregate Returns," The Review of Financial Studies, Society for Financial Studies, vol. 25(5), pages 1630-1673.
    25. Monica Paiella, 2009. "The Stock Market, Housing And Consumer Spending: A Survey Of The Evidence On Wealth Effects," Journal of Economic Surveys, Wiley Blackwell, vol. 23(5), pages 947-973, December.
    26. Lynn, Michael & Zinkhan, George M & Harris, Judy, 1993. "Consumer Tipping: A Cross-Country Study," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 20(3), pages 478-488, December.
    27. French, Kenneth R & Poterba, James M, 1991. "Investor Diversification and International Equity Markets," American Economic Review, American Economic Association, vol. 81(2), pages 222-226, May.
    28. James M. Poterba, 2000. "Stock Market Wealth and Consumption," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 99-118, Spring.
    29. Rajgopal, Shivaram & White, Roger, 2019. "Cheating when in the hole: The case of New York city taxis," Accounting, Organizations and Society, Elsevier, vol. 79(C).
    30. Tomomi Tanaka & Colin F. Camerer & Quang Nguyen, 2010. "Risk and Time Preferences: Linking Experimental and Household Survey Data from Vietnam," American Economic Review, American Economic Association, vol. 100(1), pages 557-571, March.
    31. Mark J. Kamstra & Lisa A. Kramer & Maurice D. Levi, 2003. "Winter Blues: A SAD Stock Market Cycle," American Economic Review, American Economic Association, vol. 93(1), pages 324-343, March.
    32. Borisov, Alexander & Ellul, Andrew & Sevilir, Merih, 2021. "Access to public capital markets and employment growth," Journal of Financial Economics, Elsevier, vol. 141(3), pages 896-918.
    33. Henry S. Farber, 2015. "Why you Can’t Find a Taxi in the Rain and Other Labor Supply Lessons from Cab Drivers," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 130(4), pages 1975-2026.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sousa, Ricardo M., 2010. "Consumption, (dis)aggregate wealth, and asset returns," Journal of Empirical Finance, Elsevier, vol. 17(4), pages 606-622, September.
    2. Peltonen, Tuomas A. & Sousa, Ricardo M. & Vansteenkiste, Isabel S., 2012. "Wealth effects in emerging market economies," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 155-166.
    3. Monica Paiella, 2009. "The Stock Market, Housing And Consumer Spending: A Survey Of The Evidence On Wealth Effects," Journal of Economic Surveys, Wiley Blackwell, vol. 23(5), pages 947-973, December.
    4. Simone Salotti, 2012. "Wealth Effects in the US: Evidence from the Combination of Two Surveys," The Economic and Social Review, Economic and Social Studies, vol. 43(1), pages 67-98.
    5. Cohen, Lior, 2023. "The effects of the BoJ's ETF purchases on equities and corporate investment," Economic Modelling, Elsevier, vol. 129(C).
    6. Simone Salotti, 2010. "An appraisal of the wealth effect in the US: evidence from pseudo-panel data," Working Papers - Mathematical Economics 2010-06, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    7. Ahec Šonje, Amina & Čeh Časni, Anita & Vizek, Maruška, 2014. "The effect of housing and stock market wealth on consumption in emerging and developed countries," Economic Systems, Elsevier, vol. 38(3), pages 433-450.
    8. Yener Coskun & Burak Sencer Atasoy & Giacomo Morri & Esra Alp, 2018. "Wealth Effects on Household Final Consumption: Stock and Housing Market Channels," IJFS, MDPI, vol. 6(2), pages 1-32, June.
    9. Zhang, Yixing & Jia, Qinmin & Chen, Chen, 2021. "Risk attitude, financial literacy and household consumption: Evidence from stock market crash in China," Economic Modelling, Elsevier, vol. 94(C), pages 995-1006.
    10. Maruška Vizek, 2011. "The Influence of Stock Market and Housing Wealth on Consumption Expenditures in Transition Countries," Research in Economics and Business: Central and Eastern Europe, Tallinn School of Economics and Business Administration, Tallinn University of Technology, vol. 3(1).
    11. Marco Di Maggio & Amir Kermani & Kaveh Majlesi, 2020. "Stock Market Returns and Consumption," Journal of Finance, American Finance Association, vol. 75(6), pages 3175-3219, December.
    12. Francisco Gomes & Michael Haliassos & Tarun Ramadorai, 2021. "Household Finance," Journal of Economic Literature, American Economic Association, vol. 59(3), pages 919-1000, September.
    13. Sousa, Ricardo M., 2009. "Wealth effects on consumption: evidence from the euro area," Working Paper Series 1050, European Central Bank.
    14. Ludwig Alexander & Sløk Torsten, 2004. "The Relationship between Stock Prices, House Prices and Consumption in OECD Countries," The B.E. Journal of Macroeconomics, De Gruyter, vol. 4(1), pages 1-28, March.
    15. Michael Nofer & Oliver Hinz, 2015. "Using Twitter to Predict the Stock Market," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 57(4), pages 229-242, August.
    16. David Hirshleife, 2015. "Behavioral Finance," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 133-159, December.
    17. Brady Ryan R & Stimel Derek S, 2011. "How the Housing and Financial Wealth Effects Have Changed over Time," The B.E. Journal of Macroeconomics, De Gruyter, vol. 11(1), pages 1-45, August.
    18. Ryan R. Brady & Derek Stimel & Steven Sumner, 2012. "A Time Series Test of the Direct Wealth Effect," Departmental Working Papers 40, United States Naval Academy Department of Economics.
    19. Jacinta C. Nwachukwu, 2017. "Tenure and Spending Within UK Households at the End of the Recent Recession," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 133(3), pages 1075-1104, September.
    20. Paiella, Monica, 2007. "Does wealth affect consumption? Evidence for Italy," Journal of Macroeconomics, Elsevier, vol. 29(1), pages 189-205, March.

    More about this item

    Keywords

    Corporate headquarters location; Local economic activity; Discretionary spending; Stock market wealth effects;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G19 - Financial Economics - - General Financial Markets - - - Other
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • D10 - Microeconomics - - Household Behavior - - - General
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:empfin:v:67:y:2022:i:c:p:271-287. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jempfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.