Sports Sentiment

and Stock Returns

By: Nathan Cregeur, Robert Del
Vicario, Alexander Due,
Charles McCaleb
 Sports Sentiment and Stock Returns
MOTIVATION
 Hirt et al. (1992) found that Indiana University college students
estimate their own performance to be significantly better after
watching a win by their college basketball team than after
watching a loss.
 Paper argues that a mood variable must satisfy three key
characteristics to rationalize studying its link with stock returns.
 1st - The given variable must drive mood in a substantial and
unambiguous way, so that its effect is powerful enough to show up in
asset prices

 2nd - The variable must impact the mood of a large proportion of the
population, so that it is likely to affect enough investors
 3rd - The effect must be correlated across the majority of individuals
within the country
 Asymmetry suggests that we should observe a greater effect
after soccer losses than after soccer wins.
 i.e. Increase in heart attacks, crimes and suicides after a sporting event
 Sports Sentiment and Stock Returns
DATA
 The data include games from the World Cup and the main
continental cups
 39 soccer nations
 International soccer results from January 1973 through December
2004
 A total of 1,162 soccer matches
 638 wins and 524 losses as relevant “mood events.”
 Ability of the two opponents measured by Elo ratings
 Sports Sentiment and Stock Returns
DATA
Wins Losses
Number Number
of Games βW t-Values of Games βL t-Values
Panel A: Abnormal Raw Returns

All games 638 0.016 0.27 524 −0.212 −3.27

Elimination games 177 0.046 0.43 138 −0.384 −3.24
Group games 243 0.052 0.53 198 −0.168 −1.47
Close qualifying games 218 −0.049 −0.52 188 −0.131 −1.29

Panel B: Abnormal Normalized Returns

All games 638 −0.019 −0.47 524 −0.157 −3.68
Elimination games 177 0.026 0.35 138 −0.182 −2.17
Group games 243 −0.034 −0.52 198 −0.179 −2.57
Close qualifying games 218 −0.038 −0.58 188 −0.116 −1.65
 Sports Sentiment and Stock Returns
RESULTS
 Descriptive Statistics
 Sports results are indeed correlated with stock returns
 Econometric Approach
 Null hypothesis: stock markets are unaffected by the outcomes of soccer
matches
 Alternative hypothesis: wins lead to a positive stock market reaction and
losses lead to a negative reaction
 The Loss Effect
 Statistically and economically significant negative return on the day after
a loss by the national soccer team
 Loss effect increasing in game importance
 Possible concerns
 Statistical robustness checks
 Constant volatility assumption
 Time-clustering problem
 Reject the null hypothesis
 Sports Sentiment and Stock Returns
QUESTIONS ADDRESSED
 Can price adjustments be a factor of markets adjusting to
lost cash flows from merchandise that would have
contributed to economy?
 Market cap of teams compared to percentage change in capitalization
of index
 Market cap of all UK teams is three times smaller than the change in
capitalization from a 40bps move in the FTSE 100
 What about foreign investors who do not care about local
sports teams?
 Study observes changes in small cap stocks that have greater domestic
ownership
 Price drops in small cap stocks are more significant than in large cap
stocks
 Can drop in prices be a result of a drop in liquidity from
traders that are “hung over” and less active?
 Should coincide with a decrease in trading volume after games
 Change in trading volume is insignificant and not abnormal
 Sports Sentiment and Stock Returns
CONCLUSION DRAWN FROM STUDY
 Negative market reaction to losses of national soccer teams
 Excess returns associated with losses greater than 7%
 Smaller loss effect occurs as a result of a loss in rugby, cricket and
basketball games
 No corresponding reaction to wins
 Justification of findings
 Soccer impacts mood but has minimal economic impact
 Effect is more pronounced in nations where soccer is important
 Especially large effect on small stocks
 Trading implications
 Events do not occur frequently enough to trade on
 Strongest reaction with small stocks may be hard to trade on
 Paper further links mood to asset prices