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Localized sentiment trading in heterogeneous labor markets: evidence from free agent signings

Author

Listed:
  • Aigbe Akhigbe

    (Miami University)

  • Melinda Newman

    (The University of Akron)

  • Ann Marie Whyte

    (University of Central Florida)

Abstract

We show that free agent signings in U.S. professional sports are associated with localized sentiment trading effects. Responses are influenced by player performance, labor contract and sport structure characteristics unique to each league. Football signings lack guarantees and are noisy signals while the most informative baseball signings reflect player performance. Sentiment effects of basketball signings are mixed. Investors respond positively to contract extension announcements, but negatively to new contract negotiations, with either the current team or a different franchise. Exceptions are for free agents with high performance rankings or who are perceived to improve the odds of winning a championship. We also provide some evidence that sentiment trading is driven primarily by retail investors.

Suggested Citation

  • Aigbe Akhigbe & Melinda Newman & Ann Marie Whyte, 2022. "Localized sentiment trading in heterogeneous labor markets: evidence from free agent signings," Review of Quantitative Finance and Accounting, Springer, vol. 58(3), pages 1249-1276, April.
    • Handle: RePEc:kap:rqfnac:v:58:y:2022:i:3:d:10.1007_s11156-021-01023-x
    DOI: 10.1007/s11156-021-01023-x
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    More about this item

    Keywords

    Sentiment; Localized trading; Anticipatory trading; Labor contracts;
    All these keywords.

    JEL classification:

    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining

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