Information Salience, Investor Sentiment, and Stock Returns

The Case of British Soccer Betting

F.A. Palomino, L.D.R. Renneboog, C. Zhang

Research output: Working paperDiscussion paperOther research output

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).
Original languageEnglish
Place of PublicationTilburg
PublisherTILEC
Volume2008-044
Publication statusPublished - 2008

Publication series

NameTILEC Discussion Paper
Volume2008-044

Fingerprint

Betting
Soccer
Stock returns
Investor sentiment
Overreaction
Investors
Market reaction
News
Abnormal returns
Mood
Stock price reaction
Discrepancy
Stock prices
Stock market
Trading volume
London Stock Exchange
Predictors
Rational expectations
Public information
Short-run

Keywords

  • information salience
  • investor sentiment
  • investor attention
  • sports betting
  • soccer
  • football
  • economics of sports
  • market efficiency

Cite this

Palomino, F. A., Renneboog, L. D. R., & Zhang, C. (2008). Information Salience, Investor Sentiment, and Stock Returns: The Case of British Soccer Betting. (TILEC Discussion Paper; Vol. 2008-044). Tilburg: TILEC.
Palomino, F.A. ; Renneboog, L.D.R. ; Zhang, C. / Information Salience, Investor Sentiment, and Stock Returns : The Case of British Soccer Betting. Tilburg : TILEC, 2008. (TILEC Discussion Paper).
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Palomino, FA, Renneboog, LDR & Zhang, C 2008 'Information Salience, Investor Sentiment, and Stock Returns: The Case of British Soccer Betting' TILEC Discussion Paper, vol. 2008-044, TILEC, Tilburg.

Information Salience, Investor Sentiment, and Stock Returns : The Case of British Soccer Betting. / Palomino, F.A.; Renneboog, L.D.R.; Zhang, C.

Tilburg : TILEC, 2008. (TILEC Discussion Paper; Vol. 2008-044).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Information Salience, Investor Sentiment, and Stock Returns

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AU - Palomino, F.A.

AU - Renneboog, L.D.R.

AU - Zhang, C.

PY - 2008

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N2 - 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).

AB - 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).

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KW - economics of sports

KW - market efficiency

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BT - Information Salience, Investor Sentiment, and Stock Returns

PB - TILEC

CY - Tilburg

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