Study Reveals Upcoming Olympic Games May Affect The Stock Market
Different countries bid for their nations to host the global sports event that happens once in every four years. Hosting Olympics would generate tourism in the area and even put a highlight about the good things the country can offer.
According to new research, Olympic Games and other global sports events have an effect on the activity in the stock market.
The said study was conducted by UEA or the University of East Anglia and NTU or Nottingham Trent University. The study finds that the national stock market activity in terms of trading decreases a country wins a lot with Olympic medals but the returns of the stock market appear to be unaffected in general. Here the argument of the researchers is on the drop in trading since the investors and the whole population goes, as the sports success increases so as the distraction.
The researchers argue that the drop in trading is because investors, along with the whole population, are distracted.
A good example would be the United States winning a gold medal. When this happened, the trading volume in the S&P 500 firms was almost 3% less the day after. The decrease is higher for South Korea and Germany at 7.3% and 6.7%. The volumes for trading are also less for the firms that are sponsoring the success of Olympics in the headquartered country.
Senior lecturer at NTU’s Nottingham Business School, Dr. Jessica Wang, and UEA’s Norwich Business professor in finance, Raphael Markellos are both authors. They examined the Games’ and the gold medals impact on the stock market due to the mood shift of the investors and their current distraction.
When hosting the Olympic Games, the host has a sense of well-being and a happy vibe with the rest of the nation. The Study results, however, do not confirm a significant link between the success in the Olympic Games and investors’ sentiments. The authors have concluded that it has more to do with the attention of the investors than their mood.
The results of the study are based on the set of data over four Summer Olympic Games: Sydney in 2000, Athens in 2004, Beijing in 2008, and London in 2012.
This is for the eight major economies, namely: Japan, United States, South Korea, United Kingdom, France, Germany, Australia, and the Netherlands as well as the five multinational sponsoring firms: Samsung, Coca-Cola, Visa, McDonald’s, and Panasonic.
According to Markellos, nothing is new about the idea behind their study. The phrase in the Roman times ‘Panem et circenses’ meaning bread and circuses that describe how public games and other mass spectacles divert attention. The idea is very popular as seen with the movie Hunger Games.
The survey evidence from London 2012 Games supports the results. It suggests that 1 out of 4 people said that they are going to watch the Olympic Games coverage on the Television even when working and have found themselves distracted from doing other things that they should be doing. This is one of the examples that prove how Olympic Games can affect a certain population during the chosen schedules.
These events’ effect on people have the same effect that they have when it comes to the investors.
The investors are just as any other humans that can be distracted enough and this, in turn, affect their investments activities during such Global sports event. The viewership in the United Kingdom over the Games has increased by almost 15%.
This does not mean that the sentiment is not important in sports or other large events. Attention is a bottleneck that is a prerequisite for the shifts in the mood of the investors which is a necessary but insufficient condition for impact financially.
As Dr. Wang said, the patterns of the stock market they are detecting are exploitable through a trading strategy that is based on Olympic medals. Their study produces profits that are more superior to those from the passive approach. Among other important but non-economic events linked to sports but weather, holidays, and environment may hide opportunities from investors.
Raphael Markellos and Jessica Wang published ‘Is there an Olympic Gold Medal Rush in the Stock market?’ in the European Journal of Finance.
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