Rugby Results and Investor Sentiment in New Zealand

Abstract

This paper contributes to the existing literature on sports-related market anomalies by examining whether losses by the New Zealand national rugby team (the All Blacks) affect stock market returns in New Zealand. The novelty of this paper is in its use of a probability model to control for the ex-ante probability of a win in regression analysis, so that the economic effects of a rugby loss can separated from its cognitive effects on investors’ behaviour. The paper finds support for statistically significant effect of the probability of an All Blacks win, but, initially, not for the cognitive effect of an All Blacks loss on New Zealand stock market returns. Further robustness tests, which correct for heteroskedasticity, use different modelled probabilities and treat the effect of a draw as the same as that of a loss similarly fail to reject the hypothesis that an All Blacks loss has no effect on the investors’ trading behaviour. However, consistent with the small firm anomalies in general, tests using the small cap index offer some support.