Reexamining Spors-Senimen Hypohesis: Microeconomic Evidences from Borsa Isanbul Ka Wai Terence Fung +, Ender Demir, Chi Keung Marco Lau And Kwok Ho Chan * Absrac This paper examines he impac of inernaional soccer maches on he Turkish sock marke using firm-level and sored-porfolio daa. Applying Edmans e al. (2007) esimaion mehod, we found a significan negaive loss effec. However, once using panel daa analysis as well as modeling spaial and emporal effecs explicily, he sporssenimen effec disappeared. The same conclusions could be made by replacing win (loss) dummies wih unexpeced win (loss) variables, removing Monday maches, dropping spors-relaed firms, and soring porfolio reurns by marke capializaion and pas reurns. Hence, here is very limied micro-evidence o suppor he 'overreacion' hypohesis of individual invesors using Borsa Isanbul daa. However, we found evidence ha sporing evens have a larger impac on sock reurn volailiy for firms wih smaller marke capializaion and lower pas reurns. Keywords: Individual-invesor senimen, even sudy, marke efficiency, neuroeconomics, spors economics JEL Classificaion: D87, G14, L83 We are graeful o he helpful commens from he paricipans of he Easern Economics Associaion Conference (NY, 2013) and he Borsa Isanbul Finance and Economics Conference (Isanbul, 2013). This paper was previously circulaed under he ile "Spor Even Senimen and he Turkish Marke Reurn: a Firm Level and Sored Porfolio Analysis". + Corresponding auhor. Division of Business and Managemen, Beijing Normal Universiy, Hong Kong Bapis Universiy - Unied Inernaional College. B414, 28 Jinfeng Road, Tangjiawan, Zhuhai, Guangdong Province, P. R. China 519085 econfkw@homail.com Faculy of Tourism, Isanbul Medeniye Universiy, Turkey ender.demir@medeniye.edu.r. Newcasle Business School, Norhumbria Universiy, U.K. chi.lau@norhumbria.ac.uk * Beijing Normal Universiy, Hong Kong Bapis Universiy - Unied Inernaional College, China kwokho1419@gmail.com
1. Inroducion Economic evens, such as sock splis, mergers and acquisiions, are believed o have an impac on he value of financial asses 1. The psychological lieraure in he pas decade showed ha even economically-neural evens, including weaher (Saunders, 1993; Hirshleifer and Shumway, 2003; Cao and Wei, 2005), he dayligh-savings ime change (Kamsra e al. 2000), he lunar phases of he moon (Yuan e al. 2006), and air polluion (Levy and Yagil, 2011) sysemaically correlae o variaion of asse reurns. The basic raionale is ha hese economically-neural evens have poenial repercussions on he 'mood' of an invesor, which ranslaes ino invesmen behavior ha canno be explained by he raionaliy principle. One srand of he even-sudy lieraure focuses on he impac of sporing evens (especially inernaional game resuls) on asse prices. In fac, moivaed by psychological evidence, he relaionship beween sporing resuls (especially soccer) and sock marke reurns has been developed as an imporan research field in spors economics (Hir e al. 1992; Ashon e al. 2011; Kerr e al. 2005) 2. Edmans e al. (2007) is a seminal piece. Using an inernaional soccer sample comprising maches of 39 differen counries for he period from 1973 o 2004, he auhors found ha losses of naional soccer eams led o a srong negaive sock marke reacion and he loss effec increased wih he imporance of games. This sudy aims a reexamining he spors-senimen hypohesis using firm-level daa from Borsa Isanbul - BIST (formerly known as Isanbul Sock Exchange - ISE). We explore how he performances of hree big soccer clubs of Turkey, namely Besikas (BJK), Fenerbahce (FB) and Galaasaray (GS), as well as he Turkish Naional Soccer eam affeced he BIST. To begin, why is Turkey an ineresing sudy? There are wo reasons. (1). In developed counries, here are ofen muliple sporing evens, such as fooball and baseball games, on he same day. They are equally popular. I is difficul o separae he effec of each sporing even. Turkey has no such problem as soccer is he mos imporan and dominan spor in he whole counry. I is generally believed ha he soccer-spors senimen is srong. Games agains foreign rivals are considered as a figh of naional pride in Turkey. Following inernaional game wins, people celebrae he vicory wih nighlong fesiviies in he srees. (2). A naural experimen can be conduced o es he invesors' overreacion hypohesis. The foreign raders' shares in BIST in 1 See Eckbo (1983), and Asquih and Mullins (1986). 2 For more recen sudies, see also Berumen and Ceylan (2012), and Ehrmann and Jansen (2012).
erms of marke capializaion and ransacion volume are shown in Figure 1. Foreign invesors' involvemen in he BIST measured by marke capializaion rose from around 41% in 2000 o around 67% in 2010. Domesic individual invesors rade more frequenly han foreign invesors do. In 2010, domesic invesors held around 33% of marke share bu generaed 84% of rading volume. In conras, foreign invesors owning 67% of marke share generaed only 16% of rading volume in sock exchange. Noneheless, by boh measures, he involvemen of foreign invesors increased sharply in he second half of he 2000's. The recen srucural change of he BIST provides fodder for a naural experimen: if invesors spors senimen exiss, hen he impac of sporing evens (wheher a posiive win or a negaive loss) should be sronger in he firs half of he 2000's when he marke influence of domesic invesors was relaively high 3. We will spli he panel daa (in secion 4) ino wo subsample periods o conduc his naural experimen. Our sudy differs from he previous lieraure in four imporan aspecs. Firs, he scope of analysis is broader. We consider he impac of no only he soccer clubs bu also he Turkish naional eam. This is imporan as a naional eam may affec he mood of a larger populaion in a counry. Our daase covers only inernaional games agains foreign clubs and excludes domesic games. Inernaional games should affec he mood of he supporers of he club eam playing as well as he supporers of oher clubs in a similar way due o naional pride. Neverheless, he impac of domesic games can be dilued or eliminaed, as he performance of a eam will have an opposie effec on oher eams supporers (Eker e al. 2007). Second, mos of he early sudies are confined o he impac of sporing evens on marke indices. Lile research effor was direced oward a micro-level examinaion. There is a relaed sream of lieraure sudying he effec of spors resuls on he sock reurns of publicly-raded spors clubs 4. Palomino e al. (2009) found ha sock prices were sensiive o he game resuls of 16 lised Briish soccer clubs. There was a posiive average abnormal reurn of 53 basis poins following a win, and a loss led o a negaive average reurn of 28 basis poins. Scholens and Peensra (2009) documened a posiive (negaive) sock marke reacion afer a win (loss) for 8 lised soccer eams in 5 European counries during 2000-2004. The reacion o losses was higher han wins indicaing an asymmeric marke reacion. Demir and Danis (2011) documened ha 3 Foreign invesors are no liable o reac o he resuls of a Turkish eam. 4 To our knowledge, Chang e al. (2012) is one of he few large-scale firm-level sudies, covering all firms lised in Nasdaq. However, heir analysis is resriced o domesic games.
here were negaive reacions o boh an expeced loss and an unexpeced loss for Turkish lised soccer clubs 5. One of he drawbacks of hese sudies is ha he parial effec of invesor senimen canno be separaed from ha of a change in expeced company profi. The successful clubs are able o generae more revenue; herefore, wins (losses) are expeced o increase (decrease) he fuure cash flows of clubs. A win also leads o more prize money, merchandise sales, or adverising income, hus driving up he sock price. A he same ime, i affecs invesors senimen. Hence, he performance of a eam affecs is sock price. Considering all hese, we esimae he spors-senimen effec using all 447 firms (no only soccer clubs) daa from he BIST 100, in a bid o provide micro-evidence for he invesors'-senimen hypohesis. The hird aspec is relaed o mehodology. A common problem of spors-even lieraure is spurious correlaion. The procedure used by Edmans e al. (2007), sricly speaking, is a highdimensional (39 counries) mulivariae ime-series model. The second sep is Seemingly Unrelaed Regression (SUR), adjusing for clusering effec only due o curse of dimension. As well known in he lieraure, serial correlaion biases he sandard error downward, which may lead o incorrec inference; in his paricular case, acceping he exisence of spors-senimen effec. Kaplanski and Levy (2010) ackled he spurious correlaion by differen sraegies. For insance, an oulier year wih bad reurns in which he World Cup ook place was dropped. Trading days wih major evens ha occurred during he World Cup period were eliminaed. A June-July monhly dummy was added o handle seasonal effec. Raher han manipulaing he daase and varying he independen variables, we ackle he spurious correlaion problem by casing he model in a purely ime-series seing. We propose a direc esimaion mehod. The BIST 100 firm reurns are sored by marke capializaion and pas reurns ino five porfolios. In his way, he emporal effec can be handled direcly. Fourh, Palomino e al. (2009) proposed an unexpeced mach resuls variable. The moive was ha surprising resuls should capure sronger spors senimen. We sugges a refined version of he Palomino e al. (2009) unexpeced win/loss variable. Our resuls indicae weak evidence of spors-even senimen. We demonsrae ha sporing evens have no power o explain financial asse reurns. Noneheless, sporing evens can accoun for volailiy of sored porfolio reurns. The res of he paper proceeds as follows. The nex secion describes he daa se. Secion hree 5 See also Sadmann (2006), Boido and Fasano (2007), Zuber e al. (2005), and Brown and Harzell (2001).
repors he findings of firm-level analysis. Secion 4 presens he sored porfolio analysis resuls followed by a discussion in secion five. 2. Daa The game resuls are colleced from www.mackolik.com; hey are cross-checked from various sources, for example he official websie of he Turkish Fooball Federaion 6. The firs (Besikas vs. Hapoel Haifa) and las (Besikas vs. Dynamo Kyiv) mach ook place on 28 July, 1999 and 24 February, 2011, respecively. The being-odds raios for he games prior o April, 2004 are colleced from www.beexplorer.com. The daa aferward are colleced from www.mackolik.com. Iniially, here are 430 inernaional eam and naional maches over he sample period. I is generally believed ha only imporan evens ha capure public aenion can have repercussions in he sock markes. Some screening procedure has o be implemened. We dropped he privae games and UEFA Euro Qualifying maches, winding up wih 323 maches. Mos of he European Cup games were played on Tuesday, Wednesday, or Thursday evenings; however, games of he naional eam were more homogenously disribued during he week. The effec of a game resul is observed on he firs rading day jus afer he game. Thus, if a mach is played on he weekend, he effec will be observed on Monday. Likewise, he impac of weekday games is observed on he nex rading day. The impac of a paricular game canno be separaed if here are muliple games on he same day. One possible soluion is deleing all sporing evens of a rading day if here is more han one game (Demir e al. 2014). However, his can resul in a considerable loss of observaions. We adop a differen sraegy. On any rading day wih muliple maches, if he game resuls are he same, hey are combined as one single mach wih one single resul. Oherwise, all maches are deleed 7. Afer applying hese selecion crieria, 278 maches remain. The sporing evens are 2006 FIFA World Cup qualificaion, 2010 FIFA World Cup qualificaion, 2002 FIFA World Cup, Champions League, Euro 2000, Euro 2008, UEFA, and FIFA Confederaion Cup. Among he 6 See www.ff.org. 7 An addiional crierion can be adoped o eliminae muliple-game effec. Firs, a cu-off ime is se (for insance, 9 a.m.). If a mach kicks off a 10 a.m., i will be reaed as a mach on he nex rading day. Le's say rading day is mached wih sporing even on day -1; and suppose ha day has anoher sporing even played during is rading hour (of course, his sporing even will be mached wih rading day +1). Then, he pair of rading day and sporing even on day -1 will be deleed, because he reurn on day will be affeced no only by he sporing even on day -1, bu also one on day.
278 maches, here were 45 naional eam maches, 66 for FB, 74 for BJK and 93 for GS. The overall win, draw and loss proporions are 43.5%, 20.5% and 36%, respecively. We collec daily sock prices (closing) of 447 Turkish firms lised a Borsa Isanbul from he Wharon Research Daa Services (WRDS) 8, o compue he daily reurns (dividend adjused). The sample period is from July 1, 1999 o June 30, 2011. Disconinuous rading (examples: a company is delised or sops rading for a cerain period such as afer a long holiday) will render he daily reurns meaningless. Various mehods can be used o deal wih his problem. One can drop observaions when hey are oo far apar or keep he longes rading sreak in he sample. The former approach is adoped in his sudy. To minimize he loss of observaions, we ake he approach ha if wo rading days are more han 10 days apar, he observaion will be deleed. The BIST100 index source is he Borsa Isanbul websie 9. In secion four, sored porfolios by marke capializaion (he produc of sock price and number of shares ousanding) and pas reurns (he moving average of he las 22 rading days) will be consruced by he daily firm reurns. To be specific, on each rading day, he firms are sored by marke capializaion or pas reurns and spli ino quiniles. Then, a value-weighed reurn will be compued for each quinile. The process is repeaed every day and a porfolio will be formed 10. Conrolling for he oulier effec is necessary in he case of Turkey. Turkey wen hrough economic crises in 1994, 2001, and 2008, afer opening up is capial accoun in 1989 (Rodrik, 2012). The 1994 and 2001 crises were severe and lierally dramaic. Alhough Turkey experienced srong and sable expansion unil 2007, he 2008 crisis inerruped he long expansion. There are many ways o deal wih ouliers. One mehod is simply dropping he exreme values. The second approach is creaing a dummy for he exreme rading days 11. The firs approach is adoped in his sudy. To minimize he loss of observaions, we exclude he highes and lowes (in erms of reurn) five rading days from he sample. An addiional advanage is ha, by dropping he exreme values, convergence will be improved for he GARCH-Variance and mulivariae GARCH models examined in secion four. 8 hps://wrds-web.wharon.upenn.edu/wrds/ 9 hp://www.borsaisanbul.com/ 10 We inended o consruc a porfolio by pas urnover, defined as daily rading volume (closing)/shares ousanding. However, here are many missing values of daily rading volume. 11 For insance, Demir e al (2014), Kaplanski, and Levy (2010) generae wo dummies for en rading days wih highes (lowes) reurns.
3. Micro-Level Analysis The firs par of our analysis esimaes he spor-senimen effec using Turkish firm-level daa by Edmans e al. (2007) procedure. The procedure consiss of wo seps. There were 39 counries in heir sample. The firs equaion involves he esimaion of major marke index reurns of each counry using marke facors as conrol (for insance, a local marke index and a world marke index). The residuals were hen colleced for he second sep 12 which is essenially SUR adjusing for cross-secional clusering effec. The key independen variables are win and loss dummies of games. One of he problems is ha he second sep neglecs counry-specific facors (which can be unobservable) and emporal persisence. 3.1. Edmans e al. (2007) Approach This secion is devoed o exploring he spors-senimen effec wih firm-level daa from BIST100 by using Edmans e al. (2007) esimaion sraegy. The null hypohesis is ha he sock reurn will no be affeced by economic-neural evens like inernaional sporing-even resuls and no exploiable abnormal profis exis assuming ha individual invesors are raional such ha heir buying and selling posiions are based only on fundamenals. The alernaive hypohesis is ha game resuls maer and he sock reurn variaion reflecs overreacion of individual invesors. Le R i be he coninuously compounded pos-dividend daily reurn of an individual sock i on day ; he firs sep is o esimae he following equaion: R i, = ai i,1ri, 1 i,2w i,3h i,4rm, i,5rm, 1 i, (1) where i is an index of firms and R m, is he coninuously compounded daily BIST on day. We include dummy variables for each day of he week o conrol for he day of he week effec (Berumen e al. 2007; Ke e al. 2007; Aydogan and Booh, 2003). W = {W 1, W 2, W 3, W 4 } are dummy variables for he days of he week: Monday, Tuesday, Wednesday, and Thursday, respecively. H = {H 1, H 2, H 3, H 4, H 5 } are dummy variables for days for which he previous 1 hrough 5 days are non-weekend holidays. The lagged sock reurn R i 1 is included in he specificaion (1) o accoun for firs-order auocorrelaion. The BIST 100 reurn is also included o conrol for he correlaion beween individual sock reurns and he marke index porfolio 12 This is a procedure o purge he sysemaic marke risk. In a purely emporal seing, demeaned or differenced reurns may deliver similar resuls.
reurn aribued o sysemaic risk ha is well documened in he lieraure 13. For each company i, equaion (1) is esimaed by OLS. In he second sage, we exrac he esimaed residuals from equaion (1) which represen abnormal reurns ha should be he resuls from fooball-senimen effecs. Insead of using only naional eam maches like Edmans e al. (2007), we collec daa of Turkish major soccer eams playing foreign rivals, which significanly increases he effecive sample size. The effecs of he oucome of inernaional soccer maches on individual sock reurns can be esimaed using he following regression model: ˆ i, = b bwin b LOSS b Naional b FB b BJK b BJK WIN b GS WIN b FB LOSS b BJK LOSS b GS LOSS 8 0 1 9 2 3 10 4 11 5 b GS b FB WIN 6 12 7 i, (2) where i, ˆ is he residual from regression (1); WIN (win) and LOSS (loss) are game resul dummies 14 ; Naional denoes a mach beween wo naional eams; FB, GS, and BJK are eam dummies represening Fenerbahce, Galaasaray, and Besikas. To conrol for individual-eam senimen, six win and loss ineracion erms are added o he model. The sandard error in equaion (2) is adjused for heeroskedasiciy. Hypohesis 1: The spors-senimen effec exiss if he win coefficien is significanly posiive and/or he loss coefficien is significanly negaive. As argued in secion 1, he foreign-invesor raio has increased significanly since 2006. If he spors-senimen hypohesis is rue, he measured spors-senimen effec should be sronger (no maer posiive win or negaive loss effec) in he pre-2006 period. Hypohesis 2: Domesic invesors have sronger reacions o a naional eam win or loss: he spors-senimen effec is sronger in he pre-2006 period. Table 1 repors he Edmans e al. (2007) syle resuls. Our analysis is based on hree subsample periods. The righ-hand side panel, middle panel, and lef-hand side panel repor he esimaes for he whole sample (7/1/1999-6/30/2011), pre-2006 (7/1/1999-12/31/2005), and pos- 2006 period (1/1/2006-6/30/2011), respecively. There are 158 maches in he pre-2006 period 13 Insead of a world-marke index, he Dow Jones Index was used as an inernaional-marke effec in he preliminary analysis. 14 Sricly speaking, he ime index should be -1 as explained in secion 2. We follow he convenion of he lieraure (Edmans e al. 2007; Kaplanski and Levy, 2010) o use ime.
and 120 in he pos-2006 period. The general findings are in line wih he exising lieraure on spors senimen and sock marke reurn. The esimaed coefficien of loss is negaive and saisically significan a he 1% level and 5% level for he whole sample period and pre-period respecively, consisen wih he Edmans e al. (2007) findings. While he esimaed coefficien on he loss-dummy variable is -95.7 basis poins for he whole period and -91.6 basis poins for he pre-2006 period, he loss effec disappears in he pos-2006 period 15 which is evidence supporing he spors-senimen hypohesis. The average loss effec of fooball senimen on he sock marke as found in Edmans e al. (2007) ranges from -20 basis poins o -50 basis poins, depending on games a differen levels of imporance. Therefore, we can conclude ha he fooball mood in Turkey is sronger han he world s average, and he marke efficiency is weaker han ha of developed markes. Alhough he naional eam dummy is no significan, here is evidence of eam effec. For insance, a win of Fenerbahce and Galaasaray over foreign rivals, and a loss of Galaasaray are all significan a 10%. As a resul, we can conclude ha he loss effec is overwhelming in he Turkish sock marke 16 following he Edmans e al. (2007) procedure. 3.2. Panel Daa Analysis There are wo poenial drawbacks of he esimaion sraegy adoped in he previous subsecion. (1) The emporal dependence is no adjused in he second sep which may possibly render he sandard error incorrec. (2) There are 447 firms in our sample; he idiosyncraic facors are no modeled a all. Since he number of cross-secions is larger han ha of Edmans e al. (2007) (39 counries), a naural exension is panel-daa analysis, by which boh spaial and emporal effecs are modeled. The imporance of conrolling correlaed residuals has been well explained in Peersen (2009). The auhor found ha 42% of finance papers ha had been published by ha ime did no adjus he sandard errors for possible dependence in he residuals, resuling in eiher an overesimae or underesimae of he sandard errors of he esimaed coefficiens, and hence he corresponding confidence inervals. Peersen (2009), by simulaion, demonsraed ha esimaes ha are robus in he form of dependence in he daa produce unbiased sandard errors and correc confidence inervals. 15 On he oher hand, his may imply ha marke efficiency has been improved over ime. 16 The low coefficien of variaion can be indicaors of imporan firm-specific effecs, jusifying he random-effec approach in secion 4.2.
In he following analysis, we will consider Random Effec (RE) correcing he sandard error by he Newey-Wes mehod and he Fixed Effec (FE) analysis using Driscoll and Kraay (1998) sandard errors. The error srucure is assumed heeroskedasic, auocorrelaed up o wo lags and possibly correlaed beween he firms (panels). The Driscoll and Kraay (1998) correcion mehod is a nonparameric echnique of esimaing sandard error ha places no resricion on he limiing behavior of he number of panels. I is suiable for our use since i can handle boh balanced and unbalanced panels wih missing values 17. Spaial and emporal dependence may arise in our sudy because of he complex paerns of muual dependence beween lised companies a a paricular ime. These unobservable common facors may cause biased and inefficien esimaes when we use he convenional covariance marix esimaion echnique. Equaion (2) is modified as: ˆ i, = b BJK 8 (3) c bwin i 1 WIN b LOSS b Naional b GS WIN 9 2 3 b 10 b FB b BJK 4 FB LOSS b BJK where c i is he firm effec. Wrie equaion (3) in a vecor form: where boh and x i, are (K+1) 1 vecor. Le 11 ˆ 5 ' i, = x i, i, ˆ ' h i, = xi, i, Define Ŝ T as he Newey-Wes adjusmen marix: Sˆ T m( T ) = ˆ w( j, m) ˆ ˆ 0 j=1 b GS b FB WIN 6 LOSS b GS LOSS j ' j 12 7 i, ˆ j = T ˆ ( ˆ) ˆ h ' h j = j 1 ( ˆ) where m (T ) is he lag lengh of auocorrelaion (wo, in his case), w ( j, m) is he modified Barle weigh and h ˆ ( ˆ ) he cross-secional average of h ( ˆ ). Driscoll and Kraay (1998) sandard error is simply he square roo of he diagonal elemens of he following asympoic (robus) covariance marix: where X is he sack of x i, for Var ( ˆ) ˆ ˆ i, ' ' 1 = ( X X ) ST ( X X ) (4) i = 1,..., N and = 1,..., T. 17 The rading of some sock is no coninuous, resuling in an unbalanced panel.
Table 2 shows he esimaed panel daa resuls for he whole sample (7/1/1999-6/30/2011), pre-2006 period (7/1/1999-12/31/2005), and pos-2006 period (1/1/2006-6/30/2011), respecively. The coefficiens are he same using Newey-Wes since his mehod aims a compuing correc sandard errors. The resuls show weak evidence of spors-senimen effec. Alhough he esimaed coefficien of loss is negaive, i is only saisically significan a 10% level for he whole sample period using he Newey-Wes sandard errors, which are robus o auocorrelaion and heeroskedasiciy. Moreover, no naional eam or soccer club effec is deeced. The win coefficien of Galaasaray is highly significan, bu he sign (negaive win) is incorrec. However, he resuls from Table 2 show ha neiher loss effec nor win effec is significan afer using robus sandard errors as proposed by Driscoll and Kraay (1998). We can conclude ha neiher loss effec nor win effec is significan. Only a mild bu inconsisen Galaasaray eam effec is found. 3.3. Robusness Tes There is reason o believe ha he spors-senimen effec is sronger under differen circumsances. For insance, he invesors' senimen should weaken over ime. To be specific, he impac of a Friday mach will be dilued on he following Monday rendering i weaker han weekday game resuls. We propose wo ways o deal wih he weekend-diluion effec: (1) Assume ha here is no mach on Monday, reaing i as a regular rading day wihou any mach. (2) Drop all Monday observaions. Our analysis suggesed ha hese wo crieria gave similar resuls. We, herefore, repor he resuls of he former scenario. In addiion, four soccer eams and ESEM SPOR GIYIM (which sells spor apparel) are excluded. As argued in secion one, sporing evens would affec he earnings of spors-relaed firms, which are no relaed o spors senimen. Table 3 repors he resuls of excluding Monday maches and soccer-relaed firms for he whole sample period. Evidenly, he loss effec is sronger when concenraing on weekday soccer maches using he Edmans e al. (2007) mehodology. When compared o he findings of Table 1, he loss effec increases by 50 basis poins. Wihou accouning for cross-secional and emporal dependence, he evidence lends suppor o he spors-senimen hypohesis. In fac, he loss coefficien is sill significan a one percen using Newey-Wes correcion error. However, column six of Table 3 indicaes ha he negaive spors-senimen hypohesis is rejeced using fixed-effec model. Tha said, we found a posiive win effec for Galaasaray. 3.4. How abou unexpeced mach resuls? Palomino e al. (2009) proposed an alernaive mehod. They argued ha an 'unexpeced' win (loss) should have a larger impac on financial asse reurns. The odds raio released from
being companies can summarize he opinion of bookmakers. There is a fixed-odds being marke in Turkey where he odds are posed several days before he games and hey are rarely alered by bookmakers afer he announcemen. For example, on April 25, 2010, Galaasaray played a home agains Bursaspor in he Turkish Super League. The odds were 1.55 for a home win, 3.4 for a draw, and 3.8 for an away win. If a person bes 1 euro on a home win and Galaasaray defeas he opponen, he will win 1.55 euro. If he resul is a draw or an away eam win, he loses 1 euro. Le, i = w, d l be he bookmakers perceived probabiliy of he oucomes (win, draw i, and loss), which is he inverse of odds. To conver perceived probabiliies o implied probabiliies of a win, we normalize he former by dividing each odd by he sum: w w = The normalized probabiliy of loss ( ) is defined likewise. Using l w d l w and l and he difference of hese wo, Palomino e al. (2009) specified four dummy variables, namely srongly expeced o win, weakly expeced o win, srongly expeced o lose and weakly expeced o lose. For insance, if he coefficien of srongly expeced o win is posiive and significan, he auhors conend ha i is evidence of 'overreacion'. Noneheless, an expeced oucome can hardly change he mood of individual invesors. The noion is similar o he moneary economics hypohesis ha only an unexpeced policy shock can have an impac on real variables (King and Plosser, 1984; Alig e al. 2004; Clarida e al. 2002). Therefore, we deviae from Palomino e al. (2009) by generaing an 'unexpeced win' and 'unexpeced loss' variable. The average implied win-loss probabiliy differences ( - ) is 0.2031. A mach is defined as an 'expeced win' if he acual win-loss probabiliy difference is larger han he average. Then an 'unexpeced loss' ( Unexp ecedloss w l ) is defined as an ineracion erm of 'expeced win' and 'acual loss'. Similarly, 'unexpeced win' is muliplying 'expeced loss' by 'acual win'. The boom line is ha only a surprising oucome would change invesors' moods. We proceed o esimae he following equaion he same way as in secion 3.2: ˆ i, = ci b1unexp ecedwin b2unexp 6 b GS LOSS 12 7 i, 8 ecedloss b Naional 9 3 10 b FB b BJK b GS b FB WIN b BJK WIN b GS WIN b FB LOSS b BJK LOSS (4) 4 11 5
Hypohesis 3: The coefficiens of unexpeced win and/or unexpeced loss should be significanly posiive and negaive, respecively. Moreover, he size should be bigger han hose of equaion (2). The resuls are repored in Table 4. Wheher using Newey-Wes or Driscoll and Kraay (1998) correcion error, he unexpeced oucomes have no impac on firm excess reurns in a panel seing where boh spaial and emporal effecs are adjused. The above analysis suggess ha here is no micro-evidence of spors-senimen or individual invesor-overreacion effec once boh spaial and emporal correlaions are conrolled. As suggesed by Peersen (2009), conrolling for firm-specific effec is criical for financialpanel daa. Evidenly, he spors-senimen effec is non-exisen by Driscoll and Kraay (1998). One of he possibiliies is missing relevan economic variables. I is generally acceped ha macroeconomic facors consiue a sysemaic risk ha is fundamenal o asse pricing. Unforunaely, he macroeconomic variables are unobservable for high-frequency daa. Our argumen in secions 3.2-3.4 will be sronger if we can demonsrae he disappearance of he negaive-loss effec using he original Edmans e al. (2007) daa 18. We requesed he daa from he auhors; unforunaely, he original daase is no longer available. The nex secion is devoed o mulivariae ime-series models in which wo purposes can be achieved: (1) We will demonsrae he exisence (or nonexisence) of spors-senimen effec in a purely ime-series seing; (2) We will es several ineresing hypoheses relaed o invesor irraionaliy. 4. Sored Porfolio Analysis In his secion, he esimaion is done in a purely ime-series seing in order o ackle he possible spurious correlaion problem. The esimaion mehod in Edmans e al. (2007) is a high dimensional (39 counries) mulivariae ime-series model. The curse of dimensionaliy is solved in his paper by caegorizing firm reurns ino several porfolios. Specifically, he 447 BIST 100 firm reurns are sored ino five porfolios. Two ses of resuls are esimaed using marke capializaion and pas reurns as soring crieria. Wih five porfolios, he esimaion can handle he emporal effec (serial correlaion) of he daa direcly. There are wo advanages using sored porfolios. Firs, he Capial Asse Pricing Model (CAPM) performs poorly using firm daa; bu 18 A suggesion from an anonymous referee.
he performance improves significanly when using sored porfolios. I is possible ha he spors-senimen or individual invesor-overreacion effec can be deeced in sored porfolios for which idiosyncraic facors are conrolled. Second, a couple of esable hypoheses can be proposed o verify he spors-senimen effecs. 4.1. Impac on he Mean Equaion The crieria used for soring he firm-level daa ino five porfolios are marke capializaion and pas reurns. Marke capializaion is defined as he produc of he sock price and he number of shares ousanding. Pas reurns are consruced using he moving average of he daily firm reurns of he las 22 rading days. Specifically, he firms are sored by reurns on each rading day and we spli hem ino quiniles. A value-weighed porfolio reurn will be compued for each quinile by hese wo crieria. The process is hen repeaed every day and a porfolio is formed. To avoid he excess influence of ouliers, he smalles and highes five rading days are dropped. The series are demeaned o ensure saionariy 19. Afer soring he firm-level daa ino five porfolios, resuls are esimaed by GARCH (1, 1) model. The BIST 100 daily and lagged-porfolio reurns are used as a proxy for marke facors. The win and loss dummy variables are indicaors of spors-senimen effec. Club dummies are used o conrol for eam effec. The implicaions are he same under differen spors-selecion crieria. Hypohesis 4: Wih firm-level daa sored ino five porfolios according o marke capializaion, if he spors-senimen effec ruly exiss, smaller firms (firs quinile) should have a larger spors-senimen effec. The reason behind his is ha more local, individual invesors should be involved in he sock rading for small firms raher han large firms (Baker and Wurgler, 2006). Table 5a summarizes he resuls of he sored porfolio by marke capializaion. The firs quinile denoes he reurn of he porfolio wih he smalles marke size; he fifh quinile is he highes. 19 We ried o reinforce our argumens by differen soring crieria. One opion is pas urnover raio. However, he analysis is infeasible due o excessive missing values. We also ried soring by 22-day moving average of pas variance. No significan resul was found.
Table 5a shows ha he coefficiens for BIST100 daily and lagged-porfolio reurns are significan across all five porfolios consisen wih he CAPM. The focus of his paper is he effec of sporing evens on he reurns 20. We found ha wih he GARCH model, he effec of sporing evens (win or loss effec) is mosly insignifican. The win/loss effec is only significan for fourh quinile bu he win effec is a negaive one. There is no much difference in sporssenimen effec beween small firms and large firms since he spors-senimen effec is no significan for mos firms. The ARCH and GARCH coefficiens are all significan which is evidence of srong sored porfolio volailiy persisence. To check robusness, we sor he porfolios ino quarers. As shown in Table 5b, he findings remain he same; inernaional soccer maches have no impac on mean reurns of porfolios sored by marke capializaion. Hence, here is no evidence for hypohesis 4. The above analysis ignores correlaion across porfolios, which may render he sandard error inappropriae. To conrol for his, we use mulivariae VAR(1)-GARCH (0,1) wih Consan Condiional Correlaion (CCC) proposed by Bollerslev (1990), which is a mulivariae GARCH model wih ime-varying condiional variances and covariance bu consan condiional correlaions. Since convergence is difficul o achieve wih all five porfolios, we only use he smalles and highes porfolios (1s and 5h quiniles). The esimaed sysem of equaions is: R1, = 1,0 1,1WIN 1,2 LOSS 1,3FB 1,4BJK 1,5GS 1,6 R1, 1 1,7 R5, 1 1, R5, = 5,0 5,1WIN 5,2LOSS 5,3FB 5,4BJK 5,5GS 5,6R1, R (5) [ 1, 5, 1 where, ]' ; / F ~ N(0, ) For simpliciy, we assume ha he ARCH marix is diagonal. As shown in Table 5c, all he ARCH and GARCH coefficiens are significan, indicaing srong persisence effec. The esimaed cross correlaion is 0.507 indicaing a posiive relaion beween hese porfolios. However, he win and loss coefficiens are no significan for eiher porfolio. No eam effec is deeced neiher. Nex, we sored he firm-level daa ino five porfolios according o pas reurns (22-day moving average) of invesors. I is expeced ha firms wih higher pas reurns (fifh quinile) are more aracive o small individual invesors han firms wih smaller pas reurns (1s quinile). 1 5,7 5, 1 5, 20 In his se of analyses, he ineracion erms of win/loss wih he eam are no included o improve he convergence propery of GARCH model.
Hypohesis 5: Wih firm-level daa sored ino five porfolios according o he moving average of 22-day pas reurns, if he spors-senimen effec ruly exiss, firms wih high profi should have larger spors-senimen effec. Thus, he fifh quinile should have a larger spors-senimen effec (Chang e al., 2012). However, resuls from GARCH (1, 1) model (as shown in Table 6a) show very weak evidence in suppor of significan spors-senimen effec. Only he loss coefficien of he 5h quinile is significan. Soring he porfolios ino quarile (Table 6b) gives he same resul. Similarly, using he mulivariae GARCH, Table 6c shows mosly insignifican spors-senimen effec. 4.2. Impac on he Variance Equaion Sporing evens may no affec he mean reurns. Is i possible ha variance of sored porfolio reurns is affeced by inernaional soccer mach resuls? A variance equaion is augmened o equaion (3). Our firs finding is ha he impac of sporing evens on sock reurn variance is sronger for small firms. From Table 5a, he win effec is highes for he second quinile (2.978) and virually zero for large firms. Similarly, he loss coefficien (3.24) of he variance equaion is only significan for he second quinile. Noe ha some of he parameers are zero, which is he value ha acually maximizes he log-likelihood 21. The decreasing paern of variance effec is more obvious when we sor he porfolios ino quariles, as indicaed in Table 5b. Small firms have he highes loss effec (2.0) and here is no impac on firms wih he larges capializaion. Our second finding is ha when firms are sored ino five porfolios according o moving average of 22-day pas reurns, firms wih lower profi (firs quinile) end o have larger variance afer a mach. From Table 6a, he win coefficien is as high as 2.78 for he firs quinile, declining gradually o 0.5039 of he forh quinile and evenually disappearing for he fifh quinile. There is no loss effec. The resul remains he same when we sor he firms ino four porfolios as shown in Table 6b. The win (loss) variables of Tables 5b and 6b are replaced by he unexpeced win (unexpeced loss) as a final check of robusness. The findings of Tables 7a and 7b are consisen 21 We resric he variance equaion parameers o some fixed values and see wha effec i has on he loglikelihood. The loglikelihood for he firs quinile is acually a maximum when he parameer on loss is resriced o zero. When i is resriced o some negaive numbers, hey lead o opimizaion failures wih infeasible iniial values; when i is resriced o small posiive numbers, hey lead o smaller loglikelihood han when resriced o zero. So he esimae and sandard error on he variance equaion parameer are boh zero.
wih hose of Tables 5b and 6b ha sporing evens have no impac on he mean equaion bu have a significan effec on he variance equaion. 5. Discussion This sudy reexamines he spors-senimen and invesor-overreacion hypoheses in he even-sudy lieraure. Using 447 firm daa from Borsa Isanbul from July 1, 1999-June 30, 2011, we do no find evidence for he null hypohesis once spaial and emporal effecs are modeled explicily. Insead of he convenional win/loss variables, wo surprise variables are generaed o es he overreacion hypohesis, which is rejeced overwhelmingly under differen crieria. We proceed o invesigae he null hypohesis by sored porfolios in a purely ime-series seing. Economic-neural evens like inernaional soccer maches sill have no impac on firm reurn. However, we find evidence ha sporing evens have a significan impac on he variances of firms wih smaller marke capializaion and lower pas reurns. There are a few limiaions of his paper. For he esimaion of equaions (1) and (2), Edmans e al. (2007) and Kaplanski and Levy (2010) normalize he sock marke reurns by GARCH(1,1) volailiy because he esimaes will be biased downward if he sock reurns exhibi ime-varying volailiies. Firs, a GARCH (1, 1) model is esimaed using equaions (1) and (2). Then, he esimaed condiional volailiies will be used o normalize he sock reurns o have zero mean and sandardized variance. No such adjusmen is made in his paper. Firs, achieving convergence of equaion (1) for all 447 firms simulaneously is almos impossible. Second, he emporal variaion has been modeled by he Newey-Wes, and Driscoll and Kraay (1998) correcion error. The choice of sporing even is always subjec o conroversy. Afer all, here is no objecive measure of mach imporance. For insance, he FIFA World Cup Qualifying games are no imporan o Germany or Ialy; i can be big news if i is a win for China. A popular sraegy is o es robusness by using differen sporing even choices. As a robusness es, we decided o furher screen ou he sample. A sricer crierion is adoped in he preliminary analysis. The FIFA Confederaion Cup and UEFA maches are dropped 22. Noneheless, he conclusions remain he same. 22 The resuls were repored in he earlier version of his paper.
A minor concern is he esimaion error carried over from equaion (1) o equaion (2), i.e., he measuremen error of residuals from equaion (1). As well documened in he lieraure, unless he measuremen error is correlaed o he explanaory variables, OLS is asympoically valid under appropriae homoskedasiciy assumpions. I is possible ha omied sysemaic facors can be correlaed o marke reurn in equaion (1). Wih ha said, he consequence is only large asympoic variance, which has been adjused in he second-sep esimaion.
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Figure 1. Foreigners' share in he Isanbul Sock Exchange Source: Isanbul Universiy SERPAM, Turkish Capial Marke Repor 2012 and Gedik Yaırım, BIST Equiy Marke Foreigners Trade, May 2013.
Table 1. Tes of Spor Senimen Effec by Seemingly Unrelaed Regression Period 7/1/1999-6/30/2011 7/1/1999-12/31/2005 1/1/2006-6/30/2011 Parameer Esimae Pr > Esimae Pr > Esimae Pr > Inercep 0.0204 0.0449** -0.3281 0.1032 0.3308 0.0951* win 0.2860 0.1225 0.7279 0.0128** -0.3653 0.1033 loss -0.9575 0.0007*** -0.9167 0.0597* -0.7793 0.5046 Naional -0.1037 0.5611-0.0883 0.7835-0.0508 0.8736 fb 0.2347 0.4343 0.1669 0.907 0.0088 0.9668 BJK 0.0878 0.5247 0.3249 0.0875* 0.1287 0.7837 gs -0.6656 0.0427** 0.5065 0.0011*** -0.0243 0.7801 fbwin -0.8351 0.088* -0.6509 0.7367-0.3201 0.2375 BJKwin -0.1168 0.6418-0.7194 0.0224** 0.3589 0.2437 gswin -1.4008 0.0147** -2.3987 0.0262** 0.0592 0.8098 fbloss 0.5819 0.1897 0.6733 0.5324 0.7945 0.5759 bjkloss 0.4296 0.0695* 0.5933 0.3986-0.1776 0.8206 gsloss 0.7592 0.1049 0.0026 0.9986 1.4703 0.1917 F-Saisics 25.66 0.00 14.84 0.00 37.68 0.00 ***, **, and * represen saisical significance a he 1%, 5%, and 10% level, respecively. The dependen variable is he residuals colleced from equaion (1). Win and loss are indicaors of inernaional soccer mach resuls. Naional, FB, BJK and GS are dummies for naional eam, Fenerbahce (FB), Besikas (BJK), and Galaasaray (GS). The oher variables are ineracion erms, for insance, fbwin is Fenerbahce muliplying he win parameer.
Table 2. Tes of Spor Senimen Effec by Panel Daa Analysis Period 7/1/1999-6/30/2011 7/1/1999-12/31/2005 1/1/2006-6/30/2011 Newey-Wes Driscoll-Kraay Newey-Wes Driscoll-Kraay Newey-Wes Driscoll-Kraay Parameer Esimae Pr > Esimae Pr > Esimae Pr > Esimae Pr > Esimae Pr > Esimae Pr > Inercep 0.0204 0.471 0.0205 0.941-0.3281 0.00*** -0.3289 0.574 0.3308 0.00*** 0.3309 0.00*** win 0.2860 0.336 0.2861 0.55 0.7279 0.106 0.7176 0.376-0.3653 0.357-0.3647 0.361 loss -0.9575 0.085* -0.9574 0.263-0.9167 0.117-0.9401 0.459-0.7793 0.521-0.6837 0.46 Naional -0.1037 0.688-0.1039 0.844-0.0883 0.832-0.1004 0.919-0.0508 0.863-0.0559 0.847 fb 0.2347 0.46 0.2349 0.611 0.1669 0.907 0.1954 0.812 0.0088 0.972 0.0035 0.994 BJK 0.0878 0.682 0.0873 0.817 0.3249 0.17 0.3545 0.589 0.1287 0.795 0.1356 0.687 gs -0.6656 0.891-0.0251 0.947 0.5065 0.051* 0.5444 0.41-0.6656 0.00*** -0.6721 0.002*** fbwin -0.8351 0.064* -0.8353 0.233-0.6509 0.668-0.6868 0.517-0.3201 0.510-0.3216 0.657 BJKwin -0.1168 0.763-0.1161 0.837-0.7194 0.178-0.7408 0.408 0.3589 0.587 0.3566 0.523 gswin -1.4008 0.002*** -1.4011 0.043** -2.3987 0.001*** -2.3732 0.023** 0.0592 0.898 0.0609 0.94 fbloss 0.5819 0.384 0.5816 0.558 0.6733 0.666 0.6427 0.665 0.7945 0.528 0.7027 0.505 bjkloss 0.4296 0.49 0.4300 0.648 0.5933 0.403 0.5870 0.664-0.1776 0.893-0.2792 0.798 gsloss 0.7592 0.234 0.7594 0.415 0.0026 0.997 0.0179 0.99 1.4703 0.234 1.3746 0.156 ***, **, and * represen saisical significance a he 1%, 5%, and 10% level, respecively. The dependen variable is he residuals colleced from equaion (1). Win and loss are indicaors of inernaional soccer mach resuls. Naional, FB, BJK and GS are dummies for naional eam, Fenerbahce (FB), Besikas (BJK), and Galaasaray (GS). The oher variables are ineracion erms, for insance, fbwin is Fenerbahce muliplying he win parameer.
Table 3. Tes of Spor Senimen Effec Excluding Monday Maches and Spor-Relaed Firms Seemingly Unrelaed Regression (cluser effec) Newey-Wes Driscoll-Kraay Parameer Esimae Pr > Esimae Pr > Esimae Pr > Inercep 0.0204 0.045** 0.0204 0.471 0.0205 0.941 win 0.1681 0.339 0.1681 0.556 0.1686 0.683 loss 1.4141 0.003*** 1.4141 0.021** 1.4137 0.103 Naional 0.0130 0.933 0.0130 0.958 0.0126 0.978 fb 0.2347 0.434 0.2347 0.46 0.2349 0.611 BJK 0.0878 0.525 0.0878 0.682 0.0873 0.817 gs 0.0243 0.78 0.0243 0.891 0.0250 0.947 fbwin 0.7172 0.155 0.7172 0.105 0.7177 0.274 BJKwin 0.0011 0.996 0.0011 0.998 0.0014 0.998 gswin 1.2829 0.02** 1.2829 0.004*** 1.2835 0.048** fbloss 1.0385 0.123 1.0385 0.148 1.0380 0.301 bjkloss 0.8862 0.018** 0.8862 0.189 0.8863 0.353 gsloss 1.2158 0.00*** 1.2158 0.078* 1.2157 0.197 ***, **, and * represen saisical significance a he 1%, 5%, and 10% level, respecively. The dependen variable is he residuals colleced from equaion (1). Win and loss are indicaors of inernaional soccer mach resuls. Naional, FB, BJK and GS are dummies for naional eam, Fenerbahce (FB), Besikas (BJK), and Galaasaray (GS). The oher variables are ineracion erms, for insance, fbwin is Fenerbahce muliplying he win parameer.