Does analysis of the historic behaviour of stock markets around the time of the four-yearly Olympic Games have anything of interest for investors?
The Olympic Games are a major event, often requiring much spending to improve infrastructure; and such spending can provide a fillip to a nation’s economy. If this affects prices on the stock market it is likely to happen soon after the initial announcement of a country winning the competition to host the event – so, long before the Olympics actually take place. The hosts for the Olympic Games are usually announced seven years in advance.
However, in this analysis we will look at the performance of host country stock markets in the year of the Olympics itself.
The following chart shows the performance of stock markets in countries that have recently hosted the Olympics: US (1984, 1996), Australia (2000), Greece (2004), UK (2012). (NB. China was omitted as it hosted the Games in 2008 – a year when stock markets had their focus on other matters; the share price of National Bank of Greece was used as a proxy for the Greek stock market.). The index data has been re-based to start at 100. The Games generally take place in August-September (indicated by the shaded portion in the chart).
There are no easily discernible general trends from the above chart.
To analyse this in some more detail, the following chart plots the average performance for all the markets over three periods:
1 Before games: from 1 January to the start of the games
2 During games: the two-three week period of the games
3 After games: from the end of the games to 31 December
The darker bars show the average performance calculated excluding China and Greece.
Generally, equities in host country markets appear to be weak in the months leading up to the games, perhaps when the media runs stories of cost overruns and missed timetables. And then there appears to be a relief rally afterwards.
A recent academic paper analysed the performance of stocks for two hosting countries: China in 2008 and the UK in 2012. The paper summarised its findings as-
Olympic “euphoria” is sufficient in both China and the UK to influence stock returns and valuations but the overall fundamental benefits of the Olympics are small.
This article is an extract from The UK Stock Market Almanac 2016.