Soccer Clubs' Stocks Arbitrage

Sport betting is the favorite entertainment of many people. However bookmakers are reportedly more skilled at predicting game outcomes than bettors, and betting markets are therefore extraordinarily efficient. Betting shops' wide spreads are an additional obstacle. This means that it is exceptionally hard to beat the house in this game. But one remarkable academic study from shows that there are inefficiencies in publicly listed soccer clubs' stocks which can be exploited. Investors systematically overvalue stocks before important matches as they believe in positive outcomes. Teams often draw or lose a game and stocks incur negative returns. A complicated variant of this strategy (not stated in this version, but theoretically feasible) could be created by using booking shops to hedge equity market transactions.

Fundamental reason

The academic paper postulates that an important reason for the stock market's apparent inefficient response to soccer game results is the systematic bias in investors' beliefs about the probability distribution of match outcomes. Bookmaker odds are compiled by a small group of experts and do not reflect investors' subjective beliefs while equity prices do so.

Markets traded
Confidence in anomaly's validity
Moderately strong
Notes to Confidence in anomaly's validity
only several soccer clubs' stocks from original study remain exchange listed and enough liquid for trading, high attention should be paid to backtesting as anomaly looks simple and it is possible it has been already arbitraged away (as original study ends in 2006)
Period of rebalancing
Notes to Period of rebalancing
Number of traded instruments
Notes to Number of traded instruments
estimated number of stocks used for trading, actual number of stocks could differ as not all soccer clubs mentioned in the study are still listed on market and/or are liquid
Complexity evaluation
Moderately complex strategy
Notes to Complexity evaluation
Financial instruments
Backtest period from source paper
Indicative performance
Notes to Indicative performance
per annum, estimated return based on data from table 4 - annualized (geometrically) daily return 0,88%, estimated 40 days in a year when matches are played
Estimated volatility
Notes to Estimated volatility
estimated from t-value from table 4
Maximum drawdown
not stated
Notes to Maximum drawdown
Sharpe Ratio


reversal, stock picking, arbitrage, short selling

Simple trading strategy

The investment universe consists of liquid soccer clubs' stocks that are publicly traded. The investor then sells short stocks of clubs which play UEFA Championship matches (or other important matches) at the end of the business day before the match. Stocks are held for one day and the portfolio of stocks is equally weighted (if there are multiple clubs with matches that day).

Hedge for stocks during bear markets

Yes - Short-selling strategy is a natural hedge/diversification to equity market factor during bear markets.

Source Paper

Bernile, Lyandres: Understanding Investor Sentiment: The Case of Soccer
We examine whether investors' biased ex-ante beliefs regarding probability distributions of future event outcomes are partially responsible for instances of stock market's inefficient responses to resolutions of uncertainty. 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 post-game abnormal returns. Our evidence
may have important implications for firms' investment decisions and corporate control transactions.

Hypothetical future performance

Other Papers