Empirical evidence of the stock market's (mis)pricing of customer satisfaction

Recent portfolio studies provide conflicting evidence on whether the stock market (mis)prices the value of customer satisfaction, as measured by the American Customer Satisfaction Index (ACSI), and whether ACSI-based trading strategies provide market-beating returns. The current research aims to shed new light on these issues. We reexamine two ACSI-based trading strategies considered in prior research. Applying a methodology that deals with three interlinking issues, risk adjustment, abnormal returns estimation and portfolio aggregation, we find that the trading strategies do not provide compelling evidence that the market mis-prices the value of customer satisfaction. Our study contributes to the current debate on the (mis)pricing of customer satisfaction by demonstrating the application of a framework within which the robustness of observed anomalies can be more fully assessed. Crown Copyright (C) 2009 Published by Elsevier B.V. All rights reserved.