Understanding Investor Sentiment Harvard Case Solution & Analysis

2.Game Outcomes and Returns:

a)   Returns on Days Following Games:

The equation used to compute the abnormal outcomes for the games is given below:

 Ri,t∈T = αi,T +β1i,t RLM,t−1 +β2i,t RLM,t +β3i,t RLM,t+1 +εi,t,

The above equation belongs to the simple regression model where

R i, t∈T= the day‘t’ return on stock’ i’ during the year T.

RLM, t (RLM, t−1, RLM, t+1) = is the weights assigned to the local markets index return (lagging or leading).

εi, t, = is the estimated daily abnormal returns.

The result from t-statistics after running regression model at 1% and 10% level of significance is that abnormal returns of wins are 0.12% that is not statistically significant. On the other side, the abnormal returns of losses and draw are -2.22% and -0.88% respectively that are highly significant. The difference between the reactions regarding the wins, losses and draws games were large economically and statistically significant. The value of average mean postgame return is -0.9% which is statistically significant. The overall mean of eliminated games is -1.26%

b)   Game-Day Returns:

The study also analyzes the game day returns, which is related to the investor’s sentiment that investors are highly hopeful about their future outcomes of the stock returns and the postgame abnormal return correlation with games characteristics. The mean of the game day return is 0.5% which is a positive value that shows that it is statistically significant whereas there is 13% positive correlation between the trading day volume and the game day return. On the other side, there are 11% negative returns between following day return and the game day return.

3. Proxies for Investors’ Beliefs and Objective Probabilities:

The two different investor reactions affects the changes in the stock or security price changes. This is because of two reasons, either investor has misestimated the return of the events or the investor is highly confident about the positive outcome of the investment. The variations in the change are driven by the investor’s reaction.

Book marker Odds:

To find out the investor’s sentiments book marker, odd proxy is used which is a widely used proxy to assess the outcomes of the games event.

The result got from using book marker proxy is that 32% was the expected outcome and 34% was the outcome of actual return. The odd based probabilities and games outcome difference are small.

Betting Exchange Prices:

Betting exchange prices is an alternative method to assess the belief of the investor about the prices that are traded on the prediction market. The prices of wins, losses and tied games were obtained from the two betting exchanges.

One exchange was Betifair and another exchange was Tradesports. The number of the games played traded on the Betfair exchange was larger than the number of contracts traded on the Tradesports exchange. The main disadvantage is that the Betfair’s historical data that was available for the games’ outcome was started only from 2004 so the tradesports historical data was used from the year 2001-2003 to complement the betfair historical data.

The result of Betting exchange prices indicate that the investors are highly confident on publicly traded team prospect when trading on betting exchange prices.


This study analyzes the effects of investor sentiments on the changes of the stock prices on the publicly traded European soccer club around the important matches. The overall result of this study is that the losses have significantly negative return whereas wins have significantly positive return. The overall mean return of the analysis is negative.

To assess the investor belief; book marker odd proxy was used .The result of proxy was that investor belief about the future returns caused uncertainty in the prices of the stocks. The study also finds the evidence that pre event prices of the stocks are inefficient whereas post event prices of stocks are efficient.

The sample size of publicly traded teams helps to assess the reactions of the investors towards the future outcomes of there. The investors’ pre action and post action abilities help them to make long term and short term investments decisions..................................

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