The Relationship of World Cup Match Results and Informational Betting Odds: Analyzing the Abnormal

UNIVERSITY OF AMSTERDAM Amsterdam Business School MSc Business Economics Finance Track The relationship of World Cup match results and informational betting odds: Analyzing the abnormal returns Master Thesis Author: Frano Peso Student number: 6142001 Supervisor: dr. J.J.G. (Jan) Lemmen Finish Date: 01-07-2017 STATEMENT OF ORIGINALITY This document is written by student Frano Peso who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents. ii PREFACE AND ACKNOWLEDGEMENTS To express the special significance of this thesis of my Master Finance study, I would like to express my gratitude to those who have been of great value in my study period. These are undoubtedly my parents, sister and girlfriend who took an important place in my life and also played an important part during my study at the University of Amsterdam. The unconditional support they always gave me in all I did and still do, the unlimited attention they gave me and always were a good ‘advisory body’, for which I have special thanks and appreciation. I would therefore be obliged, in respect and appreciation, to assign this doctoral thesis to them. Finally, I would like to take this opportunity to include my supervisor too, Jan Lemmen, for the good feedback, the result of my thesis would not be achieved without his critical view. Eventually this work has been a learning path for me again (it never stops!), on which I look back with a very satisfied feeling. I hope you enjoy reading! Frano Peso iii ABSTRACT I analyze the relationship between World Cup match results, betting odds and stock returns of all national football teams that participated. Using the event study analysis, I verify that abnormal returns are affected by match results. All the three possible outcomes (wins, ties, and losses) are followed by negative abnormal returns. Furthermore, I find that abnormal returns are greater with more goal difference and I conclude that the presence of both a year- and month-effect is supported by my data. Additionally, I test the explanatory power of betting odds in shaping market reactions to unexpected outcomes which have no significant effect. An extra check is needed using an alternative model for the seemingly unrelated regression model (SUR approach) to deal with bias of overlapping events. I use the generalized estimating equations (GEE) approach to handle the issue of contemporaneous correlations. Most of the GEE regression parameters could not achieve convergence after 100 iterations, except for two that were estimated for the subsample of top 27 teams. The full sample generated for the wins (ties) 0.33% (0.83%) lower abnormal returns. Further the results show that a loss (unexpected loss) of a match resulted in 0.69% (0.82%) lower abnormal returns for the sample of 27 selected national teams for which the abnormal returns were calculated with national stock exchange indices. For the same top 27 countries and using the full sample of national MSCI and stock exchange generated abnormal returns, losses and ties generated respectively on average -0.85 and 53% lower abnormal returns, immediately on the first trading day after the match date. Keywords: Football Match Results, Abnormal Returns, Betting Odds, Investor Mood and Sentiment, Event Studies, GEE, SUR JEL Classification: G12, G14, L83, C30 iv TABLE OF CONTENTS STATEMENT OF ORIGINALITY ______________________________________________ II PREFACE AND ACKNOWLEDGEMENTS _____________________________________ III ABSTRACT _____________________________________________________________ IV LIST OF TABLES ________________________________________________________ VII LIST OF FIGURES _______________________________________________________ VII CHAPTER 1 INTRODUCTION _______________________________________________ 1 1.1 PROBLEM DEFINITION __________________________________________________ 3 1.2 RESEARCH APPROACH _________________________________________________ 4 1.3 RELEVANCE _________________________________________________________ 5 1.4 OUTLINE ___________________________________________________________ 5 CHAPTER 2 LITERATURE REVIEW __________________________________________ 7 2.1 INVESTOR BEHAVIOR AND STOCK RETURNS __________________________________ 7 2.2 DOMESTIC MARKET BIAS AND THE ECONOMY _________________________________ 9 2.3 TEMPORAL EFFECTS __________________________________________________ 10 2.4 PRE-MATCH BETTING ODDS _____________________________________________ 10 2.5 HOME ADVANTAGE ___________________________________________________ 12 CHAPTER 3 METHODOLOGY ______________________________________________ 16 3.1 ECONOMETRIC MODEL ________________________________________________ 16 3.2 ROBUSTNESS CHECK TO DEAL WITH CROSS-UNIT CORRELATIONS _________________ 21 3.3 HYPOTHESES AND THE MODELS _________________________________________ 29 3.4 DATA COLLECTION ___________________________________________________ 32 CHAPTER 4 EMPIRICAL RESULTS _________________________________________ 36 4.1 MAIN FINDINGS ______________________________________________________ 36 4.1.1 Market reaction to match results and goal differencse ___________________ 36 4.1.2 The temporal effects _____________________________________________ 39 4.1.3 Informational value of betting odds __________________________________ 42 4.2 ROBUSTNESS CHECKS ________________________________________________ 43 4.3 DISCUSSION ________________________________________________________ 48 CHAPTER 5 CONCLUSIONS _______________________________________________ 49 5.1 SUMMARY _________________________________________________________ 49 v 5.2 LIMITATIONS AND RECOMMENDATIONS ____________________________________ 52 REFERENCE LIST ________________________________________________________ 54 APPENDIX A DISTRIBUTION OF THE TOP 27 PARTICIPATING COUNTRIES ________ 60 APPENDIX B DISTRIBUTION OF THE PARTICIPATING COUNTRIES _______________ 61 APPENDIX C NUMBER OF MATCHES PLAYED BY EACH NATIONAL TEAM ________ 62 APPENDIX D DISTRIBUTION OF THE EVENT DATES ___________________________ 63 APPENDIX E RANDOM EFFECTS REGRESSION RESULTS ______________________ 65 APPENDIX F CROSS-UNIT CORRELATIONS __________________________________ 66 vi LIST OF TABLES Table 1: Distribution of the post-event window after the match date. _________________________ 33 Table 2: Descriptive statistics _______________________________________________________ 35 Table 3: Linear regression with match results dummies ___________________________________ 37 Table 4: Linear regression with match goal differences ___________________________________ 38 Table 5: Linear regression with Monday or weekend effect ________________________________ 41 Table 6: Linear regression with match outcomes expectancy measures ______________________ 43 Table 7: Effect of football match results on stock price movements __________________________ 44 Table 8: Effect of football match results on stock price movements for the top 27 countries _______ 45 Table 9: Effect of football match expectancies on stock price movements _____________________ 46 Table 10: Effect of football match expectancies on stock price movements for the top 27 countries _ 47 LIST OF FIGURES Figure 1: Conceptual model with independent and dependent variables ______________________ 20 Figure 2: Within-time correlation structure in Stata’s xtcsd command _______________________ 28 Figure 3: Distribution of the abnormal returns over the World Cup years by the match results ___________ 39 Figure 4: Distribution of the abnormal returns over the months by the match results _____________ 40 vii CHAPTER 1 Introduction The international football tournaments containing this thesis take place every four years, i.e. this year (2017) there will be no big football event but next year in 2018 the World Cup will take place. The World Cup can be seen, together with the Olympic Games, as one of the most important sport events in the world. According to Rouwen (2016) the World Cup is not only about the “game” but also commercially and economically it is an important event and success at the tournaments may lead to investor confidence for the future. In general, football is the most popular sport on the planet and is known as the “people’s game”. The World Cup is undoubtedly the sport’s global happening and, as a result, every four years football tends to dominate conversations in the global and national setting equally. However, for example the UEFA Euro Championship is globally less popular than the FIFA World Cup as it applies only to European countries and the World Cup obviously applies to all countries over the world. Also, less national teams participate at the Euro compared to the World Cup. It is obvious that the world’s fascination with the “beautiful game” transcends the game itself, where football is just as much as about culture. The importance of the World Cup is noticeable in the large media coverage, the enormous TV audience, and the global interest. To support this while considering the recent World Cup (2014), the FIFA (Fédération Internationale de Football Association) has released an in-depth document detailing the facts and figures that combined to make up the 2014 FIFA World Cup in Brazil1. A brief introduction of some figure facts is that the

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