The Impact of Sporting Events on Stock Markets Essay

The Impact of Sporting Events on Stock Markets - Essay Example If however the overall mood in the country is elated it often reflects in investment decisions and in return in the stock markets. At the advent of any mega sporting contest there is an increase in economic activity in the host country. Months before the event actually start, stadiums are built or renovated, roads are paved, investment is made in horticulture and in general a lot of hustle and bustle takes place. This way the major beneficiaries include developers, building material, engineering and construction companies. Sportswear and sporting equipment vendors enjoy amplified sales. Weeks prior to the event, air fares shoot up, hotel occupancy rises, restaurants get more business and in some cases, even cell phone companies enjoy greater sales and when the event actually starts consumer companies in general gain. In addition to this, media related revenues pick up prior to such mega sporting events. Sponsorship rates, advertising charges all increase promoting the media industry as a whole. In the cricket crazy nations of the Indian Subcontinent 75% of the sports-related advertising revenues are generated through cricket events1. In major sporting contests like Olympics and Soccer world cup, awarding or winnng the contest can greatly affect national pride. In the Indian Subcontinent, a cricket match of the World Cup between arch rivals India and Pakistan, can tremendously effect the general public's mood. The matches seem more like mini wars. The entire country backs its national team and so it can alleviate the investor mood therefore when his team wins, his self-confidence rises and so does his willingness to undertake new investments, and a loss may results in lower self-confidence and a curb new investment activity. One of the major events in the sporting industry, Olympics, strongly effect economic activity in the host country. . If we go back in history and look at the past 11 Olympics, the local index of the host country has risen 25 percent on average in the 12 months before the Games year. Table 12 indicates stock market performance in the year prior to the games among the six most recent Olympics hosts1 Year Host Country Index Impact (%) 1984 USA S&P 17 1988 Korea Kospi 90 1992 Spain IBEX 33 1996 USA S&P 33 2000 Australia ASX 14 2004 Greece ASE 29 Research by Edmans (2006) indicates that losses in critical soccer matches, elimination from the World Cup tournament is linked with a next-day return on the national stock market index that is 38 basis points lower than average. Similar losses are also seen in other sports like cricket, rugby and basketball but the impact is minor in size. Research by Wann (1994) shows that if teams perform well, their fans show a strong positive reaction and a similar negative reaction when the reverse is the case. Such mood swings may effect the stock market index. The decision of where a major sporting tournament will take place also holds significance. In 2006, South African stocks nose dived when the world soccer governing body FIFA declared Germany as the hosts of the tournament. This was primarily because majority of the South Africans believed that their country would be awarded the honor of hosting the World Cup. The general gloom in the country was reflected in the stock market. Subsequently, stocks in the building and industrial sector, construction