INSTRUCTIONS: Write a 250-word response to the post below. The reply must make a recommendation of a peer reviewed journal article that provides additional information on the topic. In the response, provide a summary of the article in your own words and discuss why it is relevant to the topic. It must be different than articles referenced. Include an APA formatted citation at the bottom of the reply.
Sports Sentiment and Investor Behavior
In their review of stock markets and global finance news, modern media, both online and traditional, continuously messages the emotional volatility of our global investment markets. War, famine, elections, natural and manmade calamities all are brought forth as drivers behind the volatility that financial markets often deal with on a constant basis and make for extreme conditions that tax the global financial infrastructure. It is no surprise then that a component of behavior finance studies focuses on sentiment and in particular sports sentiment. We all have seen sports fans fueled by wins channel their exuberance by buying team memorabilia or investing heavily in the local pub, the question modern research poses is if similar sentiment can be quantified as it relates to financial market performance. Can sports-based sentiment truly lead to measurable and predictable returns as Pantzalis & Park (2014) assert in their research?
The research in general is still quite new on the impact of sports sentiment in investor behavior. Most journal articles reviewed make reference to the fact of limited original research work on the subject, yet a review of available studies in the past five years does provide sufficient research material to identify potential trends.
Several of the authors reviewed focused their research on potential correlations between sports sentiment and the market valuation shifts of companies within geographic proximity of the teams involved. Known as local bias (Pantzalis & Park, 2014), it postulates that investors tend to favor local stocks and behave in similar investment patterns as that of the local community. The methodology of their studies all placed time constraints, usually 3-5 days post a major sporting event, to study abnormality in stock performance. All found a degree of correlation between sports sentiment and stock results with variations dependent on the time period being utilized and the particular sports event or league employed for the study. Of particular interest were the observations of NBA tournament play by Akhigbe, et al, (2017), who found “stronger evidence of anticipatory trading for NBA tournament losses that for tournament wins” (P. 435). Investors seemingly did not only respond to the results of games but to the anticipated potential results derived from statistical observation of team performance during regular season plan and betting odds.
Defined as anticipatory sentiment by Payne, et al, (2018), the authors found that “sentiment also occurs in anticipation of the game itself” (p.866). The time factor of the research period thus extends outward from the event in a bi-directional manner with sports sentiment influencing investor decision by additional regional factors and the uniqueness of the actual event. Indeed, in studying Indian cricket tournaments, Gourishankar et al, (2018) found that sports sentiment impact “withers as the frequency of such events increases and their emotions fade with such frequency” (p. 275).
Research focused on the local geographic impact of sports sentiment thus seem to acknowledge that a correlation exists between sports sentiment, regional focus, uniqueness of event and overall defined time period to explain abnormalities in market valuations of stocks. Determining if such an analysis is solely confirmed to regional events is the second trend observed in the review of the literature for the weekly forum.
Football or soccer as it is known in the US, seems to be the consistent go to sport for determination of international sports sentiment impact which is not surprising given it is the most participated international sport in the world. A review of the research indicates use of similar methodologies of time variables but with additional conclusions not necessarily observed in geographically focused studies. Dimic et al, (2018) for example found a quantifiable difference in investor reaction to wins versus loses. Based on market performance over a three day period of time the authors found that fluctuations due to wins tend to register within the first third of the period while loses generate a quantitative impact during the later half of the period. Thus, sports exuberance for wins are far more marked and immediate while, as the authors indicate, “markets process bad information slowly” (p.94).
Deviating from the time-based focus impact of sports sentiment Curatola et al, (2016) sought to determine which specific markets are most likely to be impacted on a global scale. Their review of global economic data post World Cup tournaments indicated that Financial sectors tended to be favored by sports sentiment over other sectors, probably due to the ease of trading liquid assets at an international level. Indeed, their conclusions even postulated an investment strategy supporting underweighting the Financial sectors for a superior short-term return on investment.
In seeking to determine the future of sports sentiment research and perhaps identifying the questions that most need to be asked at this juncture, Geyer-Klingeberg et al, (2018) paint the most scathing analysis of the research to date. Taking the approach of studying the results of multiple studies on sports sentiment impact due to soccer events, the authors find that “literature suffers from severe publication bias, especially when looking at stock returns after lost matches” (p. 2186). Terming prior studies as selective and lacking an understanding of underlying effects of market shifts, the authors throw into question the results of years of research as being self-fulfilling. Indeed, there are still many questions to ask before a determinative answer can be found on the impact of sports sentiment in investor behavior.