The Impact of Corporate Stadium Naming Rights Agreements in Professional Sports on Short-Run Stock Returns
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First ReaderNonnenmacher, Tomas
Additional ReadersPark, Hyun Woong
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Project AbstractThe purpose of this project is to outline the historical events surrounding the inception of corporate sponsorship of professional sports stadiums through the purchasing of naming rights. Some of the costs and benefits experienced by corporations when entering naming rights agreements is also taken into consideration. An analysis and explanation of some prominent economic theories regarding asset pricing of securities is given, namely Eugene Fama’s Efficient Market Hypothesis, investor sentiment and how an investor’s future expectations can affect asset prices, as well as Andrew Lo’s modernized adaptation of the Efficient Market Hypothesis which he calls the Adaptive Market Hypothesis. Finally, given the content outlined in the first two chapters, I report my empirical analysis of the initial announcement of the sponsorship on short-run stock returns. Considering the difficulties associated with identifying the impact an event had on the return of a stock, it is necessary to calculate the abnormal return for a given stock. These calculations were made using an implementation of the Market Model by predicting expected prices based off an individual stock’s reactiveness to the market in a recent reference period. The results of the empirical analysis found that companies typically experience positive abnormal stock returns in the four trading days prior to and following the sponsorship announcement. These findings are consistent with the Efficient Market Hypothesis in both its semi-strong and weak forms.