Market Reaction to CEOs’ Dynamic Hemifacial Asymmetry of Expressions

Neuropsychological studies propose that listeners unconsciously assess speakers’ trustworthiness via their facial expressions. Building on this theory, we investigate how investors respond to CEOs’ dynamic hemifacial asymmetry of expressions (HFAsy) shown in CNBC’s video interviews about corporate earnings. Consistent with the neuropsychological prediction that facial asymmetry induces distrust, we document that (1) the stock market reacts negatively to the CEO’s HFAsy shown in the interview video, and (2) the market reaction to favorable earnings news is negatively associated with the CEO’s HFAsy. We also find a significantly positive association between the short-window abnormal bid-ask spreads and HFAsy, suggesting a larger investor disagreement for firms with high-HFAsy CEOs. Furthermore, we show that analyst forecast revisions are negatively associated with CEOs’ HFAsy. Our results are robust to conducting a falsification test using the previous quarter as a pseudo-event, employing an alternative measure of HFAsy, and using more granular trading data at the second level. Overall, our study provides evidence that investor trust and trading behavior are affected by the dynamic hemifacial asymmetry of expressions appearing on CEOs’ faces. This paper was accepted by Brian Bushee, accounting. Funding: Financial support from the National Natural Science Foundation of China [Grants 71772123, 72132006, 72172038, 72241425, 72273088, 72372103, and 72310107002], the National Social Science Foundation of China [Grant 23ZDA039], Fudan University (Sci-Tech Innovation Foundation of School of Management), and the Research Fund of Shanghai Data Exchange Corporation is gratefully acknowledged. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2023.4922 .