The Impact of Popular Sports Events on the Local Stock Markets

• Název práce v češtině: Dopad populárních sportovních akcí na lokální akciové trhy
• Název v anglickém jazyce: The Impact of Popular Sports Events on the Local Stock Markets
• Klíčová slova: sportovní sentiment, akciové trhy, behaviorální finance, sportovní akce
• Klíčová slova anglicky: sports sentiment, stock markets, behavioral finance, sports events
• Akademický rok vypsání: 2020/2021
• Typ práce: diplomová práce
• Jazyk práce: angličtina
• Ústav: Institut ekonomických studií (23-IES)
• Vedoucí / školitel: PhDr. František Čech, Ph.D.
• Řešitel: skrytý - zadáno vedoucím/školitelem
• Datum přihlášení: 30.06.2021
• Datum zadání: 30.06.2021
• Datum a čas obhajoby: 14.09.2022 09:00
• Místo konání obhajoby: Opletalova - Opletalova 26, O206, Opletalova - místn. č. 206
• Datum odevzdání elektronické podoby: 31.07.2022
• Datum proběhlé obhajoby: 14.09.2022
• Oponenti: PhDr. Jiří Kukačka, Ph.D.

Seznam odborné literatury

Ashton, J. K., Gerrard, B., & Hudson, R. (2003). Economic impact of national sporting success: Evidence from the London stock exchange. Applied Economics Letters, 10(12), 783–785. https://doi.org/10.1080/1350485032000126712

Ashton, J. K., Gerrard, B., & Hudson, R. (2011). Do national soccer results really impact on the stock market? Applied Economics, 43(26), 3709–3717. https://doi.org/10.1080/00036841003689762

Bollerslev, T. (1986). Generalized autoregressive conditional heteroskedasticity. Journal of Econometrics, 31(3), 307–327. https://doi.org/10.1016/0304-4076(86)90063-1

Chang, S. C., Chen, S. S., Chou, R. K., & Lin, Y. H. (2012). Local sports sentiment and returns of locally headquartered stocks: A firm-level analysis. Journal of Empirical Finance, 19(3), 309–318. https://doi.org/10.1016/j.jempfin.2011.12.005

Clark, J. M., Cornwell, T. B., & Pruitt, S. W. (2002). Corporate stadium sponsorships, signaling theory, agency conflicts, and shareholder wealth. Journal of Advertising Research, 42(6), 16–32. https://doi.org/10.2501/JAR.42.6.16

Edmans, A., García, D., & Norli, Ø. (2007). Sports sentiment and stock returns. Journal of Finance, 62(4), 1967–1998. https://doi.org/10.1111/j.1540-6261.2007.01262.x

Engle, R. (2001). GARCH 101: The use of ARCH/GARCH models in applied econometrics. Journal of Economic Perspectives, 15(4), 157–168. https://doi.org/10.1257/jep.15.4.157

Floros, C. (2010). The impact of the Athens Olympic Games on the Athens Stock Exchange. Journal of Economic Studies, 37(6), 647–657. https://doi.org/10.1108/01443581011086675

Frieder, L., & Subrahmanyam, A. (2005). Brand perceptions and the market for common stock. Journal of Financial and Quantitative Analysis, 40(1), 57–85. https://doi.org/10.1017/s0022109000001745

Samitas, A., Kenourgios, D., & Zounis, P. (2008). Athens’ Olympic Games 2004 impact on sponsors’ stock returns. Applied Financial Economics, 18(19), 1569–1580. https://doi.org/10.1080/09603100701720336

Shiller, R. J. (2015). Irrational Exuberance (REV-Revi). Princeton University Press. https://doi.org/10.2307/j.ctt1287kz5

Předběžná náplň práce v anglickém jazyce

Motivation:

A growing body of literature on behavioral finance examines the effect of investor sentiment on asset prices (Shiller, 2015). This literature demonstrates that psychological factors affect stock returns. In contrast to the efficient-market hypothesis, the mood of investors may influence their evaluations of prospects. Therefore, they tend to behave irrationally in financial markets. The problem is to find a variable that is strongly correlated to the mood of investors.

According to Edmans et al. (2007), one of the variables substantially and unambiguously driving the mood of a large portion of the population is sports results. They observe that market indexes significantly decline after losses, while there is no significant response of markets to wins. The strength of the effect is dependent on the popularity of the game. The results affect not only stock market indexes (Ashton, Gerrard, & Hudson, 2003) but also stock returns at the firm level (Chang, Chen, Chou, & Lin, 2012; Floros, 2010).

The other strand of literature on popular events focuses on the stock price effects of a sports sponsorship program. Frieder and Subrahmanyam (2005) demonstrate that firms with well-known corporate and brand names are preferred, regardless of the fundamentals of these firms. Clark et al. (2002) observe that stadium-naming-rights sponsorships make a positive impact on the stock prices of sponsors. Further research shows that the effect of a sports events' sponsorship program is significant, but the influence differs between the groups of firms (Samitas, Kenourgios, & Zounis, 2008).

There is only limited literature on sports sentiment that examines both effects on stock returns at the same time. Nevertheless, these studies focus only on specific sports events and small groups of firms. In addition, investors have become aware of behavioral patterns, and hence markets may tend towards market efficiency. Ashton, Gerrard, and Hudson (2011) state that the effect of sport results on stock market returns is significant but declined after the publication of the first studies.

Methodology:

To test my hypotheses, I will gather data about popular sports events, for instance, the Olympics, FIFA World Cups, etc. The chosen events were held in the period from 2010 to 2020. The pieces of information are usually provided by the associations that organize these events. As for market indexes, I will use only indexes of the hosting country. As for the stock prices of sponsors, I will use data for firms that are traded at the local stock market exchange of the hosting country. For instance, the 2016 Summer Olympics were hosted by the Brazilian city Rio de Janeiro and sponsored by the Banco Bradesco. The shares of the firm are traded on the Brazilian stock market. Thus, I will collect the historical prices of the Brazilian stock market index, Bovespa Index, and the firm, Banco Bradesco, for my analysis. Financial time series will be obtained from Bloomberg and Google Finance.

The stock prices are very often non-stationary. Hence, logarithmic returns are preferred in the study. The thesis will be based upon analyzing the patterns in stock returns volatilities concerning exogenous variables (sports results, hosting an event, etc.). In the study, I will primarily employ a GARCH model introduced by Engle (2001) and Bollerslev (1986) and its extensions. To further investigate movements in the financial markets, I will also use other standard time-series models, including vector autoregressions, autoregressive and moving average processes, etc.

Expected contribution:

This thesis fills the gap in the growing literature on the effects of sports sentiment on stock returns of local market indexes and firms participating in the sponsorship program. In the study, I will use data from different types of popular sports events and examine both effects on stock returns of the wide range of market indexes and firms. Furthermore, I will compare the results to previous studies in order to determine the persistence of these behavioral patterns.

Suggested hypotheses may be one of the alternative methods how to predict future movements in financial markets. My results may provide a new understanding of the effects of sports sentiment on investors' mood for further research on this topic.

Outline:
1. Introduction
2. Theoretical background and literature review
3. Data description
4. Methodology
5. Empirical results and discussion, comparison to the previous studies
6. Concluding remarks