The power of stars

Conventional wisdom dictates that the involvement of "star" creative talent is critical to the success of entertainment products. That belief is particularly apparent in the motion picture industry, where some actors and actresses command fees of millions of dollars per movie, and their participation alone can trigger commitments from producers, distributors, and exhibitors. However, evidence of the return on this marketing investment is inconclusive. In this study, I attempt to shed light on the relationship between creative talent and the performance entertainment goods. My empirical analysis, which focuses on the motion picture industry, takes the form of an event study. I assess the impact of over 1,200 casting announcements (covering over 600 stars and nearly 500 movies) on the behavior of participants of a relevant stock market simulation, the Hollywood Stock Exchange (HSX). The findings provide strong evidence for the hypothesis that the involvement of stars impacts the expected theatrical revenues, and shed light on the determinants of the magnitude of that impact.