With the Winter Olympics on the horizon, the Bank of Canada is out with a new paper that examines the impact of major sporting events on stock prices in real time.
The paper — co-authored by Michael Ehrmann from the International Economic Analysis Department of the Bank of Canada, and David-Jan Jansen from the Nederlandsche Bank — studies the relationship between the stock prices during a couple of key soccer matches in the 2010 World Cup.
It notes that, while previous research has shown that the results of major sporting events impact next-day stock returns through shifts in investor mood, their research looks at the impact on prices while games are being played, and finds similar effects.
“By studying the soccer matches that led to the elimination of France and Italy from the 2010 FIFA World Cup, we show that mood-related pricing effects can materialize as sporting events unfold,” it says. “During the soccer matches, stock prices in the country that eventually loses are lower by up to seven basis points.”
Moreover, it finds that that “the probability of underpricing increases as elimination from the tournament becomes more likely.”
The research aims to inform the debate over market efficiency and investor rationality, concluding, “This paper provides evidence that mood effects can affect stock pricing instantaneously and provides more insights into the evolution of these effects.”