Understanding investor sentiment: The case of soccer

Gennaro Bernile, Evgeny Lyandres

Research output: Contribution to journalArticle

22 Scopus citations

Abstract

We examine the extent to which the stock market's inefficient responses to resolutions of uncertainty depend on investors' biased ex ante beliefs regarding the probability distribution of future event outcomes or their ex post irrational reactions to these outcomes. We use a sample of publicly traded European soccer clubs and analyze their returns around important matches. Using a novel proxy for investors' expectations based on contracts traded on betting exchanges (prediction markets), we find that within our sample, investor sentiment is attributable, in part, to a systematic bias in investors' ex ante expectations. Investors are overly optimistic about their teams' prospects ex ante and, on average, end up disappointed ex post, leading to negative postgame abnormal returns. Our evidence may have important implications for firms' investment decisions and corporate control transactions.

Original languageEnglish (US)
Pages (from-to)357-380
Number of pages24
JournalFinancial Management
Volume40
Issue number2
DOIs
StatePublished - Jun 1 2011

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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