The Impact Of Sports Sentiment On Stock Returns

The rich literature of behavioral finance and psychology,such as Hirshleifer(2001)and Ashton et al.(2003,2011),shows that sports competition has a strong emotional impact,and thus will affect the economic behavior of investors,and even affect the stock market returns.This paper studies the impact of playoff games of the four major leagues in the United States and constructs the local daily value-weighted return of the franchises.The individual fixed effect panel model is used to explore whether the sports sentiment will affect the stock market returns.In order to obtain more robust results and erase the doubts on data snooping and other factors,the standard errors are corrected by using Driscoll and Kraay's robust estimator.The robustness of the mechanism of sports sentiment has been checked as well in variety of regressions.The results show that the loss of MLB,NBA,NFL and NHLwill reduce the return of the stock market,and the winning of rivalry game will increase stock return.While the effect doesn't come from the decrease of trading volume and has nothing to do with game outcomes disagree with ex-ante probability as the effient market hypothesis expected,the contrast between the all-game and elimination-game,the all-investor and the local investors,all stocks and small-cap stocks confirms the robustness of this negative effect and the strengthening as local characteristics strengths.All the evidence shows that the loss effect comes from the change of investor sentiment.Stochastic dominance method has been also used as a way to prove the robustness of the "loss effect".The main result of this paper broaden our knowledge of financial market mechanism.