The effects of sport results on domestic stock market indices: A study investigating the existence of investor sentiment

Adam Lidemar & Christian Karlsson

Student thesis: Master thesis

Abstract

This paper investigates the possible existence of investor sentiment triggered by a win of a national team in a domestically popular sport. Using a large sample of various sports results globally, each result is matched to a domestic stock index return of the winning country. These index returns are then benchmarked against global stock index returns in order to identify possible significance of higher returns due to investor sentiment. Furthermore, this study reviews the theoretical framework regarding efficient market hypothesis, various theories regarding market anomalies and presents theories related to the concept of behavioral finance. Moreover, a comprehensive literature review regarding investor sentiment is available. This study finds few significant results that would indicate an existence of investor sentiment. However, the non-significance is analyzed and contributed to mainly methodological considerations and the authors’ presents insights of why investor sentiment due to sport results is difficult to obtain in the results. Notably, three significant results are found and analyzed carefully. The paper concludes that the methodology is of vital importance in studies like these but also reflects around the obvious possibility that sport results might not affect investors enough to induce higher returns than normal. This study is careful about making conclusion regarding the strength of the efficient market hypothesis but states that a number of similar results would perhaps indicate that markets are efficient in terms of adapting quickly to important sport results. However, the authors have a firm belief in the importance of behavioral finance related studies and presents various recommendations to future research within the field of investor sentiment and sport results.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2014
Number of pages117