TAILIEUCHUNG - Sports Sentiment and Stock Returns

A number of recent papers document a link between mood and stock returns. Convincing arguments that such results are not simply the product of data mining call for investigating a new mood variable or testing an existing mood variable on an independent sample to confirm results of previous studies. For example, Hirshleifer and Shumway (2003) confirm and extend the sunlight effect first documented by Saunders (1993). Since the null hypothesis is that markets are efficient, such investigations should include a clear unidirectional alternative hypothesis, limiting the possibility of a rejection of the null in any direction suggesting statistical significance. For example, Frieder and Subrahmanyam (2004) find abnormally. | Sports Sentiment and Stock Returns Alex Edmans Diego García and 0YVIND Norli ABSTRACT This paper investigates the stock market reaction to sudden changes in investor mood. Motivated by psychological evidence of a strong link between soccer outcomes and mood we use international soccer results as our primary mood variable. We find a significant market decline after soccer losses. For example a loss in the World Cup elimination stage leads to a next-day abnormal stock return of -49 basis points. This loss effect is stronger in small stocks and in more important games and is robust to methodological changes. We also document a loss effect after international cricket rugby and basketball games. JEL classification A12 G14. Keywords soccer stock returns investor mood behavioral finance. Edmans is from the MIT Sloan School of Management García is from the Tuck School of Business at Darmouth and Norli is from the Norwegian School of Management. This paper was earlier circulated as two separate papers Football and Stock Returns by Diego García and 0yvind Norli and Soccer Sentiment and Stocks by Alex Edmans. Our joint paper was first circulated under the title Football and Stock Returns. We thank an anonymous referee an associate editor Jack Bao Nick Barberis Andrew B. Bernard 0yvind Bphren B. Espen Eckbo Florian Ederer Robert Engle Ken French Xavier Gabaix David Hirshleifer Tim Johnson Lisa Kramer Rafael LaPorta Nils Rudi Petter Rudi Rob Stambaugh the editor Jeffrey Wurgler participants at the 2005 European Finance Association meetings the 2006 Utah Winter Finance conference the Caesarea Center 3rd Annual Conference the 2006 European Financial Management Symposium on Behavioral Finance the Second Annual Whitebox Advisors Graduate Students Conference and seminar participants at MIT Sloan the Norwegian School of Management and University of Zurich for helpful comments. Julie Wherry provided research assistance on Alex s earlier paper. All remaining errors are our own. This .

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