The Italian stock market rose on Monday, while the UK stock market fell. Italian FTSE MIB index
rose 0.92% on the day, while the FTSE UK stock index
Is it a coincidence that these are reversible mirrors the result of Sunday’s widely watched European Football Championship gamewhere did Italy beat England?
Maybe not. Researchers have found that, in general, a country’s stock market suffers whenever one of its sports teams is excluded from major world competitions.
Perhaps the best known study on the subject appeared in the August 2007 issue Financial magazine. The study “Sports Voice and Share Yield” was conducted by Alex Edmans, a professor of finance at London Business School; Diego Garcia of the University of Colorado Boulder and Oyvind Norli of the Norwegian School of Management.
Analyzing stock market reactions to more than 2,000 international sporting events in 1980, the researchers found that, on average, a country was eliminated from global competition with a stock market performance that was immediately below average. trading session.
Interestingly, after winning one of these sports teams in international competitions, the researchers did not find a higher-than-average return for the country’s stock market. They speculate that this asymmetry points to a tendency for fans of lost teams to become more depressed than fans of winning teams.
One of the conclusions of this asymmetry is that the global stock market is performing below average during global sports competitions – at a time when some countries are being eliminated, in other words. Supporting evidence has been found in another study “Predictable irrationality used: The impact of the FIFA World Cup on the US stock market, ”Authors Guy Kaplanski of Bar-Ilan University and Haim Levy of the Hebrew University of Jerusalem.
Note that this conclusion was true at the previous World Cup in July 2018. During this two-week competition, Vanguard hosted the Total World Stock ETF
What about the Olympics?
This debate will, of course, lead to a focus on the forthcoming Tokyo Olympic Games, which begin on 23 July. In an email, Edmans warned against extending his research to this competition. This is because there is less national pride at stake at every Olympic event; a country is not eliminated if one of its players does not win a medal, for example.
Certainly, the Vanguard Total World Stock ETF rose 1.9% during the last Olympics in August 2016.
The investment conclusion I get from this research: Don’t look for the global stock market to perform better or worse than usual at the upcoming Olympics. This does not mean that the market will not do it. It simply means that if this happens, the result should not be attributed to the Olympics.
There is also a broader meaning to investing: the surprisingly large role that our mood plays in investment decisions. We like to think of ourselves as rational investors who approach the markets statistically strictly. These studies of sports ratings and stock returns show how wrong we can be.
Spotify mood music
As further evidence of how our mood affects our investment, Edmans referred me to a paper he and his three colleagues have just completed:The mood and shares of the music return to the whole world, ”Are co-authors with Adrian Fernandez-Perez and Ivan Indriawan from Auckland University of Technology and Alexandre Gareliga from Audencia Business School. A study is pending Journal of Financial Economics.
Researchers were given access to Spotify technology
data showing the top 200 stories for each country and day by the total number of feeds ranked. The researchers also had access to the results of the Spotify algorithm, which rated each song on its valence or positivity. They found that in 40 other countries, “musical sentiment was positively correlated with stock market performance in the same week.”
In other words, listening to upbeat stories can help increase stocks, while sadder songs bring down the market.
Researchers do not recommend us to trade the markets according to which songs are the most popular. Rather, it is their idea to show how important it is to immunize ourselves from the powerful role that our moods might otherwise play in investment decisions.
Perhaps one of the best ways to do this is to contact a colleague or partner if you want to make changes to your portfolio. Make sure it is someone who is not currently experiencing your own abundance or despair. You can take powerful control of your emotions with this simple exercise that you need to justify your decision to someone else and get their feedback.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert estimates follow investment newsletters, which pay a fixed fee for auditing. He can be reached at [email protected]