Stock Market and Soccer

The interest in the role of sentiment, mood, feelings and emotions in finance and business stems from the work of (Kahneman and Tversky, 1979). Results in this area was built on evidence from experimental psychology and economics and studies to explore how investors are affected in light of information's evaluation, risk, gains.

The applying the direct and the indirect measurement on the sentiment and feelings of the investors as an attempt to discover its role on the performance of stock markets; assume that sentiment is influenced through the psychological mechanism of mood misattribution ( Ross, 1977), Simpler; a sunny weather or sports success influence the mood of some investors which make them more optimistic and therefore, this will make them more willing to enter into long positions, which leads to higher returns in the short-run (Kavetsos and Szymanski, 2010; Dawson, Downward, and Mills, 2014) ; as an example (Arkes, Herren, and Isen,1988)found that sales of "Ohio State" lottery tickets increase in the days after a victory acheived by the Ohio State University football team.

Given the evidence that sports results affect subjects' optimism or pessimism about not just their own abilities, but life in general, which leads that they impact investors' views on future stock prices.

The direct measures was based on posing questions to investors through surveys while the two principal approaches for indirectly measuring of investor sentiment are based on continuous variables and a single event respectively, the used continuous variables include: lunar cycles (Yuan, Zheng, and Zhu, 2006), weather conditions (Saunders Jr, 1993; Hirshleifer and Shumway, 2003; Symeonidis, Daskalakis, and Markellos, 2010), and market variables (Brown and Cli_ 2004).

Some empirical evidences have shown that sentiment is connected to stock returns in an asymmetric manner by which poor mood has a stronger effect (Edmans et al., 2007; Kaplanski and Levy, 2010), while the study made by (Symeonidis, Daskalakis, and Markellos, 2010) demonstrates that good mood, as sunny weather and environmental variables is associated with increase in volatility.

Each of (Bernie and Lyandres, 2011) and (Palomino, Renneboog, and Zhang, 2009) in their studies have shown that the sentiment of investor has an important impact on stock prices of publicly traded soccer clubs.

It's important to understand that part of studies interested in the role of sentiment and financial markets focused on how restricted attention influences the level of memory and judgments which leads to behavioral biases for instance the "halo effect", the spectra of truth and magical thinking (Yantis,1998), and here we must mention here that arguments in this field draw from the vast "dual task interference" which means that humans can't efficiently concentrate on two or more tasks simultaneously (Pashler,1994), where the study of nature of attention allow allocate it in a positive norm between all the different decisions and activities faced by investors (Veldkamp, 2011).For example, when various information is growing in informative way within financial markets investors will tend to process more market rather than firm related information's as a sign of the presence of overconfidence, so volatility increases while uncertainty is declines "which leads to that attention is a more powerful driver of volatility.

(Ehrmann and Jansen, 2012)'s paper is one of the strongest in the field of explaining what happens when a team loses or wins and its effects on the financial markets, they explaining that during soccer matches market ; the level of trading volumes and stock returns will reduce "we are going to talk about it in the next part ", while (Wang and Markellos, 2015) focused on the subsequent short term impacts which these events have on stock market's activities. Where they analyses two potential drivers of investment behavior, attention and sentiment, by investigating the "Summer Olympic" performance of 8countries who participated in the competition sponsored by 5 firms.one of the two strategic priorities that the "Blair" Government set out was sustainable improvement in success in international competition, particularly in the field of sports which is important most to the public, Basically because of the "feel good factor" correlated to win.
The results shown that medals have a negative effect on volatility and volumes of trading which is economically and statistically significant. These findings are corresponded with theories of attention but in the same time we can't be easily explain it on the basis of sports sentiment.

(EDMANS,GARCIA, and NORLI,2007) in their paper "Sports Sentiment and Stock Returns" investigated the reaction of stock market toward sudden changes in investor mood using international football results as primary mood variable motivated by psychological evidence of a strong connection between mood and soccer outcomes.

They used a cross section of 39 countries and exceed 1,100 observations and more than 1,500 rugby, cricket, basketball, and ice hockey games, focused on a variable "international soccer results" that has special attractive properties as a measurement of mood.
While they reviewed extensive psychological evidence, shows that sports in general have a significant effect on mood, media coverage, TV viewing figures, and merchandise sales in many of the countries they studied.

In their results, they found a significant market decline after soccer losses, which is perceived to have some economically and statistically significant negative effect on the losing country's stock market. Consider as an example, a defeat in the World Cup elimination stage results to a next-day oscillatory or unpredictable movements in stock return of (?€’49) basis points.
We could consider for instance, the case of major defeat from a major international soccer tournament is correlated with a next-day market returns on the national stock market index that is 38 basis points lower than average. However also, we accounted for a loss effect after international cricket, rugby, and basketball games respectively.

They argue that international soccer has greater impact than other sports because it's results satisfy 3 criteria:

1. It must be strong, concrete and powerful so that its effect is clear enough to show up in asset prices.
2. The variable should touch the mood of a large proportion of the population, which means affect enough investors.
3. This impact should be connected over the majority of individuals in the country.

The magnitude of these effects is small on average for these other sports as compared to soccer, nonetheless, it is still economically and statistically significant. No evidence of a likely correspondence effect after wins for any of the sports that we study could be ascertained.

They also document that the effect is stronger in small stocks, which other studies find are disproportionately held by local investors and more strongly affected by sentiment.

In conclusion, our interpretation of the results is that the loss effect is caused largely by a change in investor's mood.

As evidence of the fundamental importance of sport we can find significance that it's effects of sports results extend far beyond simple mood changes. For instance, in many cases sport results have such a strong effect that they adversely affect health.

(Carroll et al,2002) show that cases of heart attacks increased 25% during the next 3 days period after June 30 1998, the day England lost to Argentina in World Cup in France penalty shoot-out.

Also (White,1989) documented that elimination from the U.S. National Football League playoffs leads to a significant increase in homicides in the relevant cities following the games, and (Wann et al,2001) itemized several cases of riots after unfavourable sports outcomes, referencing more of relevant studies on the same subject matter. Trovato, (1998) also found that suicides among Canadians rise significantly if the Montreal Canadians are eliminated early from the Stanley Cup playoffs.

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