NARCISSISM AND STOCK RETURNS: AN ASSET PRICING TEST

Abstract

This study looks at how CEO narcissism, measured by pronoun use in earnings call transcripts, relates to abnormal stock returns. Previous research connects narcissism to company outcomes, but it is still unclear how financial markets respond to it. We use data from U.S. firms in COMPUSTAT and CRSP to build monthly strategies based on CEO narcissism and test their performance with standard asset pricing models, such as CAPM, and the Fama-French factor models. We find that companies with highly narcissistic CEOs have meaningful higher returns than those with non-narcissistic CEOs, with a monthly spread return of about 0.29%. However, the return differentials driven by narcissistic CEOs is not statistically significant -at the standard 5% level- after controlling for different factors. Since the abnormal return is positive and marginally economically significant, investors can benefit from the strategy where they long firms managed by highly narcissistic CEOs and short those managed by non-narcissistic ones.