Sports Sentiment and Stock Returns: The Bombay Stock Exchange

Abstract

Problem/Relevance: This study is motivated by psychological evidence of a strong connection between sporting event outcomes and mood. To evaluate this connection, we analyze the Indian stock market reaction to sudden changes in investors’ mood captured by India’s cricket results. By focusing on a rarely studied mood variable and a very infrequently studied stock exchange, this study adds to our understanding of the association between sporting event outcomes and mood. Research Objective/Questions: In this study, we investigate the impact of cricket wins and losses on the Bombay Stock Exchange. We hypothesize that cricket wins or losses will drive investors’ mood substantially and unambiguously so that the game outcomes will be powerful enough to impact asset prices. We also evaluate the hypothesis that losses are psychologically more powerful than wins. Methodology: We analyze the daily data from the Bombay Stock Exchange using the methodology of Edmonds et al. (2007). This methodology has the advantages of capturing the Bombay Stock Exchange stock returns timevarying volatility through a GARCH model. Major Fundings: Our findings show that cricket wins and losses do not impact the Bombay Stock Exchange. On the exchange, stock prices reflect relevant information. Our results are thus consistent with the Efficient Market Hypothesis. Implication(s): Our results imply that on the Bombay Stock Exchange, cricket wins and losses cannot be reliably used by investors and portfolio managers to achieve returns in excess of the average market returns on a risk-adjusted basis.

Stock Markets and Major Sport Events: Evidence from Cricket World Cup 2019

“…Some other studies, however, do not support the results of this study including the study of Devy and Irawan (2019) who concluded that the ASIAN games had no impact on the stock market and Anghel (2018) who claimed that the impact is weak. In addition, the Indian stock market was concluded to be not affected by the results of the Indian cricket team as reported by Beer and Lin (2019) and Gkillas et al (2020) which is also not supported by the results of this study. Regarding the effect of win and loss on the stock market, the results of this study are not inline with the results of Truong et al (2021) who concluded that losing an international soccer match has a negative impact on the stock prices and the study of Nachimuthu and Selvam (2018) in which the authors claimed that both win and loss of an international one-day cricket match affect the Bombay stock exchange while in this study only loss has a significant and positive impact.…”

“…To test the effect of sport's results on the stock markets, researchers used many quantitative methods including generalized autoregressive conditional heteroskedasticity model (GARCH) (Beer & Lin, 2019;Kashif et al, 2020), linear regression model (Graziano & Vicentini, 2017) and event study (Asim et al, 2021;Galloppo & Boido, 2020;Škrinjarić & Barišić, 2019). The method used in this study, however, was the event study because the population size was small (trading days of the Indian team matches in the world cup) and thus, the other methods used in the literature cannot be utilized.…”

“…If there is an impact for the sports event on stock markets, cricket may be the most likely sport to have that effect in India because it's the most popular sport there and this fact has motivated researchers to conduct some studies to test its impact. Beer and Lin (2019) explored that impact by analyzing the results of all matches played by the Indian cricket team from 2008 to 2015 and found that the results of cricket matches do not affect stocks' prices in Bombay stock exchange. The conclusion of this latter study was supported by the study of Gkillas et al (2020) who concluded that the impact of international cricket matches of the Indian team on Bombay stock exchange is weak.…”

“…Many researchers studied the effect of sport events on the stock prices (Beer & Lin, 2019;Galloppo & Boido, 2020;Škrinjarić & Barišić, 2019), but this is different than studying the effect of major events in that major events may have more importance and thus, more impact on the behavior of its fans including investors in the stock market. Major sports' events include events at the international level like the world cup, Asian cup, and others.…”