Publication Type

Journal Article

Version

submittedVersion

Publication Date

2011

Abstract

We examine the extent to which the stock market's inefficient responses to resolutions of uncertainty depend on investors’ biased ex ante beliefs regarding the probability distribution of future event outcomes or their ex post irrational reactions to these outcomes. We use a sample of publicly traded European soccer clubs and analyze their returns around important matches. Using a novel proxy for investors’ expectations based on contracts traded on betting exchanges (prediction markets), we find that within our sample, investor sentiment is attributable, in part, to a systematic bias in investors’ ex ante expectations. Investors are overly optimistic about their teams’ prospects ex ante and, on average, end up disappointed ex post, leading to negative postgame abnormal returns. Our evidence may have important implications for firms’ investment decisions and corporate control transactions.

Discipline

Finance and Financial Management

Research Areas

Organisational Behaviour and Human Resources

Publication

Financial Management

Volume

40

Issue

2

First Page

357

Last Page

380

ISSN

1755-053X

Identifier

10.1111/j.1755-053X.2011.01145.x

Publisher

Wiley

Additional URL

https://doi.org/10.1111/j.1755-053X.2011.01145.x

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