TY - JOUR
T1 - Understanding investor sentiment
T2 - The case of soccer
AU - Bernile, Gennaro
AU - Lyandres, Evgeny
PY - 2011/6
Y1 - 2011/6
N2 - We examine the extent to which the stock market's inefficient responses to resolutions of uncertainty depend on investors' biased ex ante beliefs regarding the probability distribution of future event outcomes or their ex post irrational reactions to these outcomes. We use a sample of publicly traded European soccer clubs and analyze their returns around important matches. Using a novel proxy for investors' expectations based on contracts traded on betting exchanges (prediction markets), we find that within 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 postgame abnormal returns. Our evidence may have important implications for firms' investment decisions and corporate control transactions.
AB - We examine the extent to which the stock market's inefficient responses to resolutions of uncertainty depend on investors' biased ex ante beliefs regarding the probability distribution of future event outcomes or their ex post irrational reactions to these outcomes. We use a sample of publicly traded European soccer clubs and analyze their returns around important matches. Using a novel proxy for investors' expectations based on contracts traded on betting exchanges (prediction markets), we find that within 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 postgame abnormal returns. Our evidence may have important implications for firms' investment decisions and corporate control transactions.
UR - http://www.scopus.com/inward/record.url?scp=79959546662&partnerID=8YFLogxK
U2 - 10.1111/j.1755-053X.2011.01145.x
DO - 10.1111/j.1755-053X.2011.01145.x
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AN - SCOPUS:79959546662
SN - 0046-3892
VL - 40
SP - 357
EP - 380
JO - Financial Management
JF - Financial Management
IS - 2
ER -