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How the stock market will respond to China’s Winter Olympics

How the stock market will respond to China's Winter Olympics
Jordan Major

Although China’s Winter Olympics in Beijing provides a massive marketing opportunity for sponsors to display their products, investors will be cautious about the event’s impact on the stock market.

Indeed, losses or sporting events have been shown to have an impact on investment performance. Notably, international sports competitions frequently result in lower than average global stock-market returns, according to a study that discovered this correlation, published in 2007, in the Journal of Finance, titled “Sports Sentiment and Stock Returns.”

It is crucial to highlight that the conclusions of the authors were based on a sample size of thousands of international sports tournaments on average, with a particular focus on World Cup football matches, cricket championships, and the Olympics, whose packed schedules ensure that there are losing countries on a daily basis.

Professor Diego Garcia of the University of Colorado Boulder, one of the report’s authors, points out that it is unclear if the stock market would underperform by enough over the next two weeks to cover the transaction costs associated with selling equities now and purchasing them again after the Olympics.

How the results affect investment decisions

Over the last 15 years, individuals in academic circles have realized that their research does not support the notion that one should engage in short-term trading. 

On the contrary, Professor Garcia argues that the most important financial lesson to take away from their findings is the difficulty stock traders have when avoiding letting their emotions impact their investment decisions.

Garcia says he and his fellow researchers discovered clear evidence that:

“Investors in the country whose team loses become gloomy, and as a consequence more pessimistic about equities’ potential, leading that country’s stock market to perform poorly the following day.”

However, the stock market’s performance didn’t improve in nations whose teams won international contests, according to the study. 

As a result of winning and losing, causing an imbalance to the stock market over a multi-day international competition, the global stock market tends to underperform during these events.

Why is this important?

After their teams were defeated, it’s unlikely that any of the investors who got melancholic were aware that their state of mind was having an impact on their investment choices. 

When it comes to investing, traders always believe themselves to be completely logical investors who objectively analyze data and estimate probability distributions.

For this reason, the research demonstrating a link between sports emotions and the stock market is relevant. 

Therefore, in order to keep a cool head, the “15 Most famous Investing Quotes of All Time” by Finbold is a great resource for traders who need guidance to make shrewd investing choices over the next two weeks and beyond.

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.

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