Understanding Investor Sentiment: The Case of Soccer

Financial Management, Vol. 40, pp. 357-380, 2011

50 Pages Posted: 17 Feb 2009 Last revised: 12 Nov 2013

See all articles by Gennaro (帅纳) Bernile

Gennaro (帅纳) Bernile

University of Miami - Department of Finance

Evgeny Lyandres

Tel Aviv University

Multiple version iconThere are 3 versions of this paper

Date Written: 2011

Abstract

We examine whether investors' biased ex-ante beliefs regarding the probability distribution of future events' outcomes can partially explain the stock market's inefficient response to resolution of uncertainty. In our experiment, we analyze stock returns of publicly traded European soccer clubs around important matches. Using a novel proxy for investors' expectations derived from contracts traded on betting exchanges (prediction markets), we find that in 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 post-event abnormal returns. Our evidence may have important implications for firms' investment decisions and corporate control transactions.

Keywords: investor sentiment, expectations, prediction markets

JEL Classification: C93

Suggested Citation

Bernile, Gennaro (帅纳) and Lyandres, Evgeny, Understanding Investor Sentiment: The Case of Soccer (2011). Financial Management, Vol. 40, pp. 357-380, 2011, Available at SSRN: https://ssrn.com/abstract=1343685 or http://dx.doi.org/10.2139/ssrn.1343685

Gennaro (帅纳) Bernile

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States

Evgeny Lyandres (Contact Author)

Tel Aviv University ( email )

Ramat Aviv
Tel-Aviv, 6997801
Israel
6400241 (Fax)

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