Predictable Sports Sentiment and Local Trading

Abstract

We examine whether predictable outcomes of the National Basketball Association playoff games can generate increased trading of firms headquartered in the geographic area of the participating teams. We find statistically significant increased trading before games and this effect is more pronounced and persistent for games with more predictable outcomes, for predictable losses more than wins, and for more critical games. We also find that this effect is more pronounced for firms that are more vulnerable to shifts in investor sentiment and we find weak evidence that trading leads to price effects. The results are consistent with the hypothesis that predictable sentiment can drive investor behavior.

Is There a Differential Market Size Effect in U.S. Free Agent Signings? Evidence From Localized Sentiment Trading

“…Regarding sport sentiment in particular, Edmans et al (2007) and Bernile and Lyandres (2011) find negative stock returns at the country level associated with team losses of major international soccer matches, while Palomino et al (2009) show positive sentiment wealth effects for British soccer match winners. Chang et al (2012) show that local firms near a losing NFL teams display lower next-day returns than firms near the winning team, while Akhigbe et al (2017) document positive (negative) wealth effects for firms local to winning (losing) teams in NBA playoff games.…”

“…Additionally, a single superstar can create a decisive advantage, or a "competitive imbalance" in the NBA's five-player team structure (Akhigbe et al, 2017;Maxcy & Mondello, 2006;Zimbalist, 2002). A related phenomenon in the NBA is player empowerment.…”

“…Evidence in the behavioral finance literature shows that a shift in investor mood affects stock prices (Hirshleifer & Shumway, 2003;Kamstra et al, 2000;Loughran & Schultz, 2004), and these effects are particularly evident in the stocks of local firms with which investors are most familiar (Ivkovic & Weisbenner, 2005;Pantzalis & Ucar, 2018;Shu et al, 2012). A small number of studies connect these lines of research and find evidence of localized sentiment trading surrounding professional sporting events (Akhigbe et al, 2017;Bernile & Lyandres, 2011;Chang et al, 2012;Edmans et al, 2007;Palomino et al, 2009). We examine whether the localized sentiment response to the acquisition of free agents differs across big and small markets in United States (U.S.) professional leagues.…”

“…Our contribution to the finance literature is 2-fold. First, our work adds to the growing evidence that sport outcomes provide a channel through which mood changes manifest in sentiment trading behavior (Akhigbe et al, 2017;Bernile & Lyandres, 2011;Chang et al, 2012;Edmans et al, 2007). Sports enthusiasts instinctively understand big market/small market dynamics, but studies have not yet explored how these dynamics interplay with investment behavior.…”

Jumps beyond the realms of cricket: India's performance in One Day Internationals and stock market movements

“…Most of the existing papers on sporting events and stock price movements (see for example, Berument, Ceylan, and Gozpinar [2006]; Edmans, Garcia, and Norli [2007]; Kavetsos and Szymanski [2008]; Klein, Zwergel, and Heiden [2009]; Scholtens and Peenstra [2009]; Smith and Krige [2010]; Levy, [2010a, 2010b]; Chen and Chen [2012]; Pantzalis and Park [2014]; Shu and Chang [2015]; Curatola, Donadelli, Kizys, and Riedel [2016]; Kaustia and Rantapuska [2016]; Akhigbe, Newman, and Whyte [2017]; Dimic, Neudl, Orlov, and Aijo [2018]) focus on the role of a multiple sporting event like the Olympics or soccer (football) matches, which is understandable, given the global reach of the sport. Comparatively, limited attention has been given to the role of cricket on stock market movements (barring a few notable exceptions like Edmans et al [2007]; Mishra and Smyth [2010]; Abhijeet [2011]; Abidin and Azilawati [2011]; Verstoep, Singh, Nguyen, and Bhattacharya [2015]; Narayan, Rath, and Prabheesh [2016]), which is a bit surprising, given that it is second most popular sport with more than 2.5 billion fans around the world.…”