Stock-market impact of the International Cricket Council's decision to reallocate 2011 World Cup matches

Abstract

This paper analyses stock-market reactions in Pakistan, India, Sri Lanka and Bangladesh after Pakistan was stripped of hosting duties for the 2011 Cricket World Cup matches. It advances the literature by providing an analysis of a unique situation where a country was stripped of the right to host matches of a major sporting event. Pakistan's matches were redistributed among fellow host countries India, Sri Lanka, and Bangladesh. Analysing both regular and abnormal returns, I find an overall positive stock-market reaction in all these countries, albeit due to different reasons. There are negative reputational effects for Pakistan and positive reputational effects for India, Sri Lanka and Bangladesh. Further, the returns are negatively correlated with the number of matches awarded. The results suggest positive reputation effects associated with hosting the 2011 Cricket World Cup matches, but a negative marginal impact of each additional match hosted.

Notes

¹ D. Hopps, ‘ICC Removes Pakistan as World Cup Host’, The Guardian, 18 April 2009. The ICC later confirmed that Pakistan would remain an official co-host even though it would not host any matches. M. Stafford, ‘No Games But Pakistan Retains Rights to £10m in World Cup Co-host Fees,’ The Guardian, 15 June 2009, http://www.guardian.co.uk/sport/2009/jun/15/pakistan-2011-world-cup.

² Kasmati, ‘Economic Aspects’.

³ Lee, ‘Review of Economic Impact Studies’.

⁴ An alternate explanation comes from behavioural finance. Awarding of the matches could increase happiness, causing investors to make more optimistic choices. Research shows that mood can be affected by sports and that happier moods are related to higher returns. Performance of sports teams can affect the mood of the fans (Hirt et al., ‘Costs and Benefits of Allegiance’. Happy people are more optimistic, reporting a higher probability of positive events (Wright and Bower, ‘Mood Effects’). Financial markets exhibit abnormal positive returns on sunny days (Hirshleifer and Shumway, ‘Good Day Sunshine’; Saunders, ‘Stock Prices’. Ashton, Gerrad and Hudson, ‘Economic Impact of National Sporting Success’, find a strong association between the performance of English football teams and subsequent daily changes. Eker, Berument and Dogan (‘Football and Exchange Rate’) find a positive association between the sucess of Turkish football teams and the exhange rate of the Turkish lira. Edmans, Garcia and Norli, ‘Sports Sentiment’, find stock market declines after international sport losses.

⁵ Berman, Brooks and Davidson, ‘Sydney Olympic Games’.

⁶ Veraros, Kasimati and Dawson, ‘2004 Olympic Games’.

⁷ Mirman and Sharma, ‘Stock Market Reaction’.

⁸ Dick and Wang, ‘Economic Impact of Olympic Games’.

⁹ Leeds, Mirikitani and Tang, ‘Rational exuberance?’.

¹⁰ Lal, ‘2011: Bigger than Big’.

¹¹ The New Zealand Herald, ‘Cricket: India given more World Cup matches’, 29 April 2009. The total number of games is now 49, compared to the original announcement of 51 games. I was not able to discover when the two games were dropped.

¹² Dawn.com, ‘Pakistan stripped of World Cup matches’, 18 April 2009, http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/the-newspaper/front-page/pakistan-stripped-of-world-cup-matches.

¹³ MacKinlay, ‘Event Studies’, provides a good description of abnormal returns and a corresponding market model.

¹⁴ For robustness I also employ the model used by Mirman and Sharma, ‘Stock Market Reaction’. Their model is based on Edmans, Garcia and Norli, ‘Sports Sentiment’. This model defines expected returns as: where r _j − 1 is the return on the previous day for index i, r _mj is the return on the world index on day j, r _mj − 1 is the return on the world index on day j − 1, and D ₄ to D ₈ are the dichotomous variables for the day of the week for the entire period. For example, for Monday, the value of D ₄ will be equal to 1; otherwise it will be 0. The results are qualitatively similar to those of the regular market model.

¹⁵ I also use a different version with an intercept and get similar results.