Driving Gains? A Two-Stage Analysis of Formula One Performance and Short-Term Cumulative Abnormal Returns

Abstract

Formula One has grown rapidly in recent years, and car manufacturers want to get back on the grid. Literature has centered on whether sponsors of Formula One teams display abnormal returns after specific race outcomes, though analyses on the teams themselves are rarely found. We fill this gap by investigating the relationships between Formula One race outcomes, standings, and stock market responses for the parent company of teams between 2018 and 2024. We employ a two-stage analysis, first estimating cumulative abnormal returns using the event-window of [-1, +1], then assessing their association with F1 performance under univariate tests and multivariate regressions. Our findings contradict the importance of individual wins or podiums, emphasizing the role of mechanical DNFs in influencing short-term returns, though the plausibility of this is dubious. For standings, we find statistically significant relationships dynamic by type and asymmetric by magnitude. It appears top standings positions increase in cumulative abnormal returns as the season progresses, suggesting the presence of a confirmation bias for competitive teams, despite poor individual results. We also find standings moves are only significant for positive changes, with moves to top spots rewarded more. Taken together, our results support a blend of psychological biases, sentiment-driven effects, and rational revisions of expectations as potential reasons for these share price fluctuations. Though individual successes may not drive short-term returns, cumulative performance likely does, emphasizing the further risks that come with entering Formula One.