Information Salience, Investor Sentiment, and Stock Returns: The Case of British Soccer Betting

45 Pages Posted: 3 Dec 2008 Last revised: 23 Dec 2019

See all articles by Frédéric Palomino

Frédéric Palomino

EDHEC Business School - Department of Economics & Finance

Luc Renneboog

Tilburg University - Department of Finance; European Corporate Governance Institute (ECGI); Tilburg Law and Economics Center (TILEC)

Chendi Zhang

University of Exeter Business School

Date Written: December 1, 2008

Abstract

Soccer clubs listed on the London Stock Exchange provide a unique way of testing stock price reactions to different types of news. For each firm, two pieces of information are released on a weekly basis: experts' expectations about game outcomes through the betting odds, and the game outcomes themselves. The stock market reacts strongly to news about game results, generating significant abnormal returns and trading volumes. We find evidence that the abnormal returns for the winning teams do not reflect rational expectations but are high due to overreactions induced by investor sentiment. This is not the case for losing teams. There is no market reaction to the release of new betting information although these betting odds are excellent predictors of the game outcomes. The discrepancy between the strong market reaction to game results and the lack of reaction to betting odds may not only be the result from overreaction to game results but also from the lack of informational content or information salience of the betting information. Therefore, we also examine whether betting information can be used to predict short-run stock returns subsequent to the games. We reach mixed results: we conclude that investors ignore some non-salient public information such as betting odds, and betting information predicts a stock price overreaction to game results which is influenced by investors' mood (especially when the teams are strongly expected to win).

Keywords: information salience, investor sentiment, investor attention, sports betting, soccer, football, economics of sports, market efficiency

JEL Classification: G12, G14

Suggested Citation

Palomino, Frédéric and Renneboog, Luc and Zhang, Chendi, Information Salience, Investor Sentiment, and Stock Returns: The Case of British Soccer Betting (December 1, 2008). Journal of Corporate Finance, Forthcoming, ECGI - Finance Working Paper No. 229/2009, TILEC Discussion Paper No. 2008-044, WBS Finance Group Research Paper No. 106, Available at SSRN: https://ssrn.com/abstract=1310702

Frédéric Palomino

EDHEC Business School - Department of Economics & Finance ( email )

France

Luc Renneboog

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Warandelaan 2
5000 LE Tilburg
Netherlands
+13 31 466 8210 (Phone)
+13 31 466 2875 (Fax)

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Chendi Zhang (Contact Author)

University of Exeter Business School ( email )

Streatham Court
Xfi Building, Rennes Dr.
Exeter, EX4 4JH
United Kingdom

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