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Information Salience, Investor Sentiment, and Stock Returns: The Case of British Soccer Betting

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Author Info
Palomino, F.A.
Renneboog, L.D.R.
Zhang, C. (Tilburg University, Tilburg Law and Economics Center)

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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). Keywords: information salience, investor sentiment, investor attention, sports betting, soccer, football, economics of sports, market efficiency JEL Classifications: G12, G14

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Publisher Info
Paper provided by Tilburg University, Tilburg Law and Economic Center in its series Discussion Paper with number 2008-044.

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Date of creation: 2008
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Handle: RePEc:dgr:kubtil:2008044

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