Research suggests that major sports results impact the stock market perhaps due to their impact on the mood of investors. Specifically, losses in major soccer tournaments can cause the stock market to decline by about half a percent the following trading day, on average.
This result appears robust, applying across countries and to various other national sports too. Losses from international cricket, rugby, ice hockey and basketball can also move markets downward. However, soccer may have the most impact on markets. Interestingly, though sporting losses can cause the market to decline, victories don’t appear to cause markets to move up much.
This may not be too far-fetched. Sporting losses have been found, unfortunately, to be associated with increases in homicides and suicides in the city that the team represents. Therefore, the outcomes of major sporting results do appear to impact the mood of those watching, and hence perhaps their trading behavior.
The data here is based sporting results from the 1970s to the early 2000s. As such, there is a chance that this market behavior has changed and the former relationship no longer holds. That said the results appear robust across countries and sporting events that we may have some faith in the conclusions.
The research paper is ‘Sports Sentiment and Stock Returns’ by Alex Edmunds, Diego Garcia and Oyvind Norli. However, it is not a one-off, researchers have found that investors’ moods can move the markets in many different ways.
Also, unlike some studies this finding does not mean that markets are necessarily inefficient. Since the results of major sporting events cannot be known in advance, so there is not necessarily any free money to be made here.
However, the broader conclusion may be useful to investors. Namely that downturns in investor sentiment can impact the broader market, if only temporarily and whether that comes from economic news or sporting results.
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