Advertising as a predictor of investment

The collapse of Iceland's financial system in October 2008 is used as a natural experiment to test whether advertising decisions have a forward-looking component. The results show that changes in the volume of advertisements precede changes in investment.

► We search for a leading indicator of the financial crisis in Iceland in 2008. ► The number of pages in newspapers is used to measure the volume of advertising. ► The volume of advertising predicts investment in the run up to the crisis. ► Changes in advertising also to lead changes in investment in other countries.