National Exuberance: A Note on the Melbourne Cup Effect in Australian Stock Returns

Abstract

This note examines the presence of a Melbourne Cup effect in Australian daily stock returns over the forty-five years from 3 January 1961 to 30 December 2005. First run in 1861, the Melbourne Cup is Australia's premier horse race and one of the world's leading handicaps. Parametric tests of differences in means and a regressionbased approach are used to test for the effect alongside a conventional day-of-the-week (Tuesday) and monthof-the year (November) effects. The results indicate that the mean Melbourne Cup Day return of 0.1916 is significantly higher than the mean return for other Tuesdays in November (-0.2345), Tuesdays in other months of the year (-0.0352), and Monday, Wednesday, Thursday, and Friday returns throughout the year (0.0516). This suggests the exuberance associated with Australia's unofficial national day is translated into irrationally positive market behaviour.

The Impact of Trading-Restricted, Business Days and Trading, Non-Business Days on Australian Small-Cap, Large-Cap and Market Returns

“…The results of this analysis provide some indirect support here. However, this could also be result of the market euphoria associated with Australia's premier horse race, as argued by Worthington (2007) with a behavioural finance approach. In either instance, this must be strong enough to offset the reduction in market participation with the public holiday in Victoria.…”

“…Following Vergin and McGinnis (1999), Keef and Roush (2005) and Worthington (2007) The daily returns for each specified index employ the logarithmic or continuously compounded formula:…”

Is There an Olympic Gold Medal Rush in the Stock Market?

“…by Krueger and Kennedy (1990), in soccer (UK) by Ashton et al (2003), in horse-racing (Australia) by Worthington (2007), in rugby by Boyle and Walter (2003) and in cricket (India) by Mishra and Smyth (2010). Finally, Bernile and Lyandres (2011) and Palomino et al (2009), show that investor sentiment is important for stock prices of publicly traded soccer clubs.…”

Is there an Olympic gold medal rush in the stock market?

“…At the firm level, Chang, Chen, Chou, and Lin (2012) show that National Football League (NFL) game losses lead to lower next-day returns for locally headquartered NASDAQ firms. The importance of sports sentiment for the stock market is also analysed in Super Bowl (US) by Krueger and Kennedy (1990), in soccer (UK) by Ashton, Gerrard, and Hudson (2003), in horse-racing (Australia) by Worthington (2007), in rugby by Boyle and Walter (2003) and in cricket (India) by Mishra and Smyth (2010). Finally, Bernile and Lyandres (2011) and Palomino, Renneboog, and Zhang (2009), show that investor sentiment is important for stock prices of publicly traded soccer clubs.…”