Metaverse could play an important role in the future of financial institutions
Ender Demir, Associate Professor at Reykjavík University's Department of Business Administration, is one of the authors of an academic research that recently appeared in the Research in International Business and Finance Journal. It reports a first attempt at measuring the market reaction to firms' SEC disclosures related to Metaverse activity.
A number of companies are beginning to invest and develop activities in Metaverse. Contrary to the common conception, the Metaverse is not only related to the gaming field. It is expected to become involved in and accommodate many economic sectors, including healthcare, education, social commerce, advertising, smart manufacturing, and many others. From this viewpoint, the Metaverse may capture an important position in the future of financial institutions, as they provide support for the execution of financial activity and settlement throughout the Metaverse. Regulators and policymakers will also have to delve deeper into the significance of the Metaverse, as a legal framework is needed to shape this new infrastructure.
The research differentiates between disclosures associated with vague future intentions or plans to adopt Metaverse activity ("Vague") and announcements concerning actual activities related to the Metaverse infrastructure ("Clear"). "Clear" disclosures are associated with higher abnormal returns, in contrast to "Vague" ones leading to a milder response by investors in the days surrounding the disclosure. The study results indicate that early adopters and large-cap firms earn higher abnormal returns immediately following Metaverse disclosures than late adopters and small-cap companies.
Although the Metaverse may represent a potential growth engine for firms in the future, we document a short-term positive overreaction in share price behavior that is completely reversed within the 30 days following the announcements, regardless of the size of companies, the timing of the disclosure, or whether the disclosure was "Clear" or "Vague."
This reversal in abnormal returns hints that the market response to Metaverse disclosures is more likely to be a behavioral phenomenon rather than real pricing that the market wishes to express in equity prices. Thus, the authors have managed to document another event in which stock trading is overwhelmed by hype for the "new guy in town."
Here is a link to the paper Real returns from unreal world? Market reaction to Metaverse disclosures.
