How do sports influence stocks? - June 17, 2018

How do sports influence stocks?

The World Cup might have an interesting effect on markets and stocks. How come? The event is expected to have more than 3.2 billion viewers globally. That means brokers and investors will watch the matches just like anyone else. The thrills of the event will influence them as well.

The World Cup has started but why would we, a company involved in investments, write about it? Because it can be an important fact in stock trading. How come? Sports events can seriously influence the market and stocks, according to statistics.

World cup’s viewership

Quartz published a study based on previous years’ World Cup effect on stock markets, and they found out some interesting things. As they’ve put it, “even the most casual sports fan can’t help but get sucked in by the World Cup. In 2014, 3.2 billion people watched the matches. This year, even more people are expected to tune in to the tournament in Russia.”

This means that close to half the World’s population will be watching soccer. In that half, there are traders and investors just as well as anyone else. This has a serious effect on trading, therefore on stock prices.

The effects are serious

The aforementioned research paper was written by economists from the European Central Bank and the central bank of the Netherlands. They checked the influence matches had on the trading volumes. They found out that “the effects were particularly large when the home team played during market opening hours”. They give a shocking example too: “in 2014, when a country played during trading hours, volumes dropped by as much as 48% in that country’s stock market. This was even more than during the 2010 tournament, when trading volumes fell by an estimated 36%”.

What’s more, this effect became even more serious when a goal was scored. This can reduce trade by another 10%. After the end of the match, it takes somewhere between half an hour and an hour for trading to go back to normal. What’s even more important is that trading values seriously influence prices, too. That might be the reason why the authors found out that there are “inattention-driven price effects” which leads local stock exchange prices to decouple from global markets during matches.

Influence of other sports

Not only the World Cup has the power to influence financial markets. There is a phenomenon known as the Super Bowl Halo Effect, which works 80% of the times. The effect is rather interesting. The National Football League has two factions, the AFC and the NFC. Dow Jones usually declines after the Super Bowl if an AFC team wins and goes higher if an NFC team wins. This might be a false correlation between the two data, but there are other influences that are surely connected. According to Seeking Alpha, Super Bowl really boosts the economic activity and the stocks of local companies in the city that hosts the finals.

Other events don’t have such good effects on hosting cities. The Olympic Games for example tend to have negative effects on hosts. Even though they do increase trade and have great influence on tourism on a short term, they are also really expensive. This lead several countries going close to bankruptcy after the games.

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving their personal investment goals on the long term.