The summer is slowly approaching; therefore, our new article will be on a little lighter tone. We will examine a research paper on a periodic event with sentiment implications:
International events, such as sports tournaments and talent competitions, can affect stock market prices by changing investor mood. Many studies have examined the influence of investor sentiment on future cash flows and investment risks. The authors focused on a specific song competition – the Eurovision Song Contest, an international song competition organized annually. Every year approximately 40 delegations represent their country in the contest. The participants compete for one evening, followed by the winner announcement. No surprise, the grand finale is viewed by tens of millions of people worldwide, and the victory in the competition creates common feelings of national pride.
The authors of the recent academic paper (Abudy, Mugerman, Shust) examined a positive swing in investor mood in the winning country the day after the Eurovision Song Contest and documented an average abnormal return of 0.381%. On the contrary, they did not find any negative sentiment in other participating countries. To check the robustness, they applied a placebo test. The results confirmed that obtaining such an abnormal return accidentally is negligible. Additionally, the authors concluded that the positive sentiment is unique to the winning country and is not affected by other events that occur at the same time. Finally, they examined if the positive effect comes from expected economic benefits rather than investor sentiment. The test disproved this assumption and stated that the positive change acquired from an unexpected positive boost in investor mood. Last but not least, according to the authors, the positive effect is reversed within days.
Title: The Winner Takes It All: Investor Sentiment and the Eurovision Song Contest
This paper investigates the stock market reaction to a change in investor mood following the Eurovision Song Contest—an annual international song competition and one of the most watched non-sporting events globally. Contrary to existing literature on international competitions, we find a positive swing in investor sentiment in the winning country. The elevated atmosphere is reflected in a positive abnormal return of approximately 0.35% on the first trading day after the victory. This finding is robust to various event-study methods and to various benchmarks. This positive return is reversed several days later. Further, we do not find any indication of negative sentiment in other participating countries; specifically, in countries perceived as the losers of the contest. Finally, we do not find any indication that the positive market reaction reflects economic benefits stemming from a victory. Overall, we conjecture that a competition structure is an important determinant of investor sentiment in stock markets.
Visit Quantpedia for additional insight on this topic: https://quantpedia.com/investor-sentiment-and-the-eurovision-song-contest/.
Disclosure: Interactive Brokers
Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from Quantpedia and is being posted with permission from Quantpedia. The views expressed in this material are solely those of the author and/or Quantpedia and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
In accordance with EU regulation: The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.
Any trading symbols displayed are for illustrative purposes only and are not intended to portray recommendations.