With the Vancouver 2010 Winter Olympics poised to open Friday, advisors can take heart from research that suggests the good feelings surrounding high-profile sporting events can lead to stock market rallies.

Some behavioural theorists suggest that extraneous factors, such as the outcome of sporting events, can influence investing behaviour, says HSBC Securities (Canada) Inc.

In a research note, it reports that it looked at the market returns for host countries in the two weeks they were hosting an Olympics, both summer and winter, dating back to 1988, finding that, during that time, “the market of the host country traded higher 58% of the time and had an overall average return of +0.9%.”

For example, the last time Canada hosted an Olympics, in 1988 in Calgary, the domestic market rose 3.2% during the games, outperforming the S&P 500’s 2.0% gain.

“It could also be that the good Olympic feeling (not to mention the enriched economy and international exposure) keeps the market momentum going for months afterwards,” it notes, adding, “Typically, the markets of the host countries rally strongly in the 12 months after the closing ceremonies — a 14.8% gain on average (the Canadian market rallied 12.7% after Calgary).”

“Further, the host country market performance, either positive or negative, during the two weeks of the Games tends to correspond to that market’s performance over the next 12 months 83% of the time. If you believe in spurious correlations, pay attention to what the Canadian market does during the Vancouver Games, it could have bearing on how we do for the rest of the year,” it says.

“And in case you need further proof that sports can influence investor behaviour, the S&P/TSX Composite traded down the day after the Canadian men’s Olympic hockey team lost in the medal round in 2006 in Turin and the market traded up for three consecutive days following our gold medal wins for the men’s and women’s hockey teams in 2002 in Salt Lake City (+1.2%, +0.7% and +1.1%). Talk about basking in the gold-medal glow,” it concludes.

IE