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Economic Countdown To The Olympics 1: Impact On Stock Markets

Tyler Durden's picture





 

With 15 days until the Olympics, we introduce the first in a five-part series of market-and-economy related discussions centered on that glorious event. As global equities exhibit their own 'Citius, Altius, Fortius', Goldman looks at the impact of the Olympics on stock markets. They note that, aside from the benefit of raising the international profile of the host country as both a tourism and investment destination, the announcement of a winning Olympic bid means major investment in infrastructure, including stadiums, accommodation and transport to prepare for the Games. Interestingly, all recent Olympic hosts have outperformed the MSCI World index in the 12 months following the Olympics. This is true of recent hosts regardless of the size of the economy or state of development, suggesting either the local market is boosted by the international profile of the Games, or is perhaps relieved to have the Games behind them. Given the below-average performance in the UK since the Olympic announcement, UK investors may hope for a continuation of this trend, looking forward to a positive year in equities following the London 2012 Games.

 

Francesco Garzarelli and George Cole, Goldman Sachs: Impact of Olympics on Stock Markets

Hosting the Olympics results in a number of economic effects that could have an impact on stock markets. Aside from the benefit of raising the international profile of the host country as both a tourism and investment destination, the announcement of a winning Olympic bid means major investment in infrastructure, including stadiums, accommodation and transport to prepare for the Games. For example, as part of the 2012 Games, the London Olympic Delivery Authority has awarded $9.4bn in contracts to business, and the government has invested an additional $10.2bn in transport and infrastructure projects, representing around 0.8% of UK GDP. This investment offers potential benefits for local business, in particular for sectors such as construction and engineering.

How might this be reflected in markets? If markets were forward-looking, we would expect the benefits of the Olympics to be priced into local equity markets at the time of the announcement, since the approximate magnitude of required investment would be known in advance. Various studies have examined the impact of the Olympic host announcement on stock prices, with mixed conclusions. In particular, Dick and Wang (2008) find evidence that, on average, host stock markets are positively affected by Olympic host announcements. However, Liu (2011) finds little clear evidence that the Chinese stock market was affected (positively or negatively) by either the 2000 host announcement, when Beijing was considered a favorite to win before ultimately losing the bid to Sydney, and the 2008 announcement, when Beijing was awarded the Games.

 

To visualise the impact of the Olympic host announcement, we chart returns following the last eight Olympics host city announcements, including London and Rio De Janeiro (chart above). We calculate stock index returns above the benchmark MSCI World index for the winning country over a three-day window following the announcement.

While there is variation among the host nation stock markets, all but China and the UK have positive returns in the three days following the announcement. The Greek stock market stands out as the top performer: it outperformed the benchmark by almost 8% after the 1997 announcement for the 2004 Games. For London, the day following the announcement in 2005 was the July 7 bombing, causing the FTSE to fall 1.3%, before rebounding. The chart above also shows returns above benchmark during the two weeks of the Games, albeit with no obvious pattern. China’s winning bid announcement coincided with turbulent markets in the midst of the global downturn in July 2001, while the Olympics in August 2008 took place on the brink of the financial crisis.

To see the longer-term impact of the Olympics, we measure the performance of the host stock market against a world benchmark over the six to seven years between announcement and the opening ceremony of the Games, as well as the returns in the year following the Olympics (chart below). The equity markets in China, Korea, the US and Greece outperformed leading up to the Olympics, whereas those in Spain, Australia, and the UK underperformed. The latter three stock markets each suffered from headwinds in the global cycle leading up to the 1992, 2000 and 2012 Olympics.

 

Interestingly, all recent Olympic hosts have outperformed the MSCI World index in the 12 months following the Olympics. This is true of recent hosts regardless of the size of the economy or state of development, suggesting either the local market is boosted by the international profile of the Games, or is perhaps relieved to have the Games behind them. Given the below-average performance in the UK since the Olympic announcement, UK investors may hope for a continuation of this trend, looking forward to a positive year in equities following the London 2012 Games.

 


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Wed, 07/11/2012 - 21:35 | Link to Comment fonzannoon
fonzannoon's picture

How about Brazil?

Wed, 07/11/2012 - 21:39 | Link to Comment I think I need ...
I think I need to buy a gun's picture

maybe we will all unite under a new world order and 10 dollar gas

Wed, 07/11/2012 - 21:46 | Link to Comment I think I need ...
I think I need to buy a gun's picture

and it will give me something else to watch, instead of watching reruns of storage wars, doesn't that say it all we built garges (storage facilities) everywhere so people can buy extra crap they can't afford and then is bought and resold again and again and again its like one big flea market the entire country

Wed, 07/11/2012 - 22:28 | Link to Comment Michael
Michael's picture
I'm thinking more like a wooden Guy Smiley; Mitt Romney’s Al Gore problem

But in temperament and style, Romney is closest to Gore, another politician’s son from Harvard with pedantic tendencies who, in public, never quite seems comfortable.

The media tend to assign each candidate a character flaw as a form of shorthand (John McCain was volatile, George W. Bush was dopey, Obama is all talk). Ominously, Romney’s descriptions are the same applied to Gore 12 years ago: assuming “personas,” going through “makeovers,” attempting “regular-guy” traits, exhibiting “robotic” behavior and issuing new versions, such as “Romney 3.0.”

For Romney, the problem now becomes that reporters, and opponents, are perpetually on the lookout for new examples to add to his dossier of awkwardness. “It’s a self-perpetuating cycle,” explained Chris Lehane, who sought, with limited success, to help Gore defy his “wooden” image. “You’re trying so hard to think through what you’re going to say that you get mental handcuffs every time you speak. You’re so nervous about the archetype that you fall into the archetype.”

http://www.washingtonpost.com/opinions/mitt-romneys-al-gore-problem/2012/01/13/gIQAJyKawP_story.html

Wed, 07/11/2012 - 22:37 | Link to Comment knukles
knukles's picture

Oh fuck Goldman, the Olympics, the New World Order, the Bilderburgers, the Bankers, the Central Bankers, the Politicians and Everybody Associated Therewith.

Olympic Investment Meme, my ass.

Horseshit

 

Jesus... stretching a bit for the next Muppet SkullFucking I see.

Wed, 07/11/2012 - 23:00 | Link to Comment Bicycle Repairman
Bicycle Repairman's picture

You can keep the olympics and all the nauseating political theatre that goes with it.  I won't be partaking.

Thu, 07/12/2012 - 00:09 | Link to Comment AldousHuxley
AldousHuxley's picture

WRONG

 

olympics is the news......you SELL on the news.

 

Look at China....FXI never broke above July 2008 price

 

UK is a developed country. olympics won't boost the entire country....only certain real estate sectors.

Thu, 07/12/2012 - 00:13 | Link to Comment Dr Benway
Dr Benway's picture

Nah I gotta agree. Fuck the Olympics, and sports, and team colours, and nationalism, and bullshit. All beards to distract from the banksters stealing your fucking shit.

 

And it is a travesty that MMA is not an Olympic sport, FFS it was the first sport in history!

Thu, 07/12/2012 - 00:36 | Link to Comment Dr Benway
Dr Benway's picture

Also, this question has perplexed me for long: why the fuck are these clowns graphs so UGLY? Like seriously it's alomost like they are making a virtue of poor design decision, like that will lend them additional credibility.

Thu, 07/12/2012 - 05:59 | Link to Comment MillionDollarBoner_
MillionDollarBoner_'s picture

Bread and Circuses

Circuses and Bread.

Thu, 07/12/2012 - 07:20 | Link to Comment tocointhephrase
tocointhephrase's picture

Only certain real estate sectors.

Yes the postcodes are as follows. W1 W2 SW1 NW1 NW8 SW7 SW6 WC1 WC2 everywhere else LOOK OUT BELOW and Stratford, Leytonstone, Bow, Leyton etc YOU HAVE RUN OUT OF ROAD!

Thu, 07/12/2012 - 05:57 | Link to Comment MillionDollarBoner_
MillionDollarBoner_'s picture

How about "douchebag"? That should cover it

Wed, 07/11/2012 - 23:46 | Link to Comment piceridu
piceridu's picture

How about Greece...ask the populace how they feel about those "glorious few days"...

Thu, 07/12/2012 - 00:14 | Link to Comment Rich Bagg
Rich Bagg's picture

Can't wait for the fish/chips with rotten teeth to be shown on TV.

 

 

Wed, 07/11/2012 - 21:35 | Link to Comment ACP
ACP's picture

Gold, silver and bronze BITCHEZ!

Wed, 07/11/2012 - 21:46 | Link to Comment SHEEPFUKKER
SHEEPFUKKER's picture

First place= Tungsten medal.

Wed, 07/11/2012 - 21:58 | Link to Comment WiretapWilly
WiretapWilly's picture

The gold medals are over 90% silver.

Better than if the medals were made from western central bank gold - gold plated tungsten!

Wed, 07/11/2012 - 22:35 | Link to Comment knukles
knukles's picture

Surprised somebody hasn't corrected it to

Gold, Silver and Brass.

(not an original idea)

Wed, 07/11/2012 - 22:57 | Link to Comment AssFire
AssFire's picture

Bronze? Fuckin copper/alloy: Bronze???

LMFAO

Wed, 07/11/2012 - 21:44 | Link to Comment Rob Jones
Rob Jones's picture

When I visited Greece several years ago several of the locals pointed out various pieces of infrastructure (stadium, expressways, etc.) that had been built for the 2004 summer games.

I guess whatever boost the games provided has now faded.

Wed, 07/11/2012 - 22:16 | Link to Comment The Gooch
The Gooch's picture

It's one big euro stand now.

Tzaziki?

Wed, 07/11/2012 - 21:55 | Link to Comment disabledvet
disabledvet's picture

I thought LA was the only place that ever "made money on the Olympics." And of course look at LA now! Or better yet Greece! China doesn't seem any worse for wear. http://www.youtube.com/watch?v=k-4ebkWmuTs

that's my Olympic theme song. Goes well with those who trade equities for a living i might add.

Wed, 07/11/2012 - 22:50 | Link to Comment AssFire
AssFire's picture

Let's not forget the Blacklanta Games during the Ebonic Period (Hosted by Richard Jewel) and how awesomely well that city is doing...especially all the small regional banks:

http://www.fdic.gov/bank/individual/failed/banklist.html

now drink and laugh

 

Wed, 07/11/2012 - 23:04 | Link to Comment Mark123
Mark123's picture

LA is a great big freeway....complete with pot holes, big box stores, Targets and Walmarts full of obese illegal Mexicans.

Thu, 07/12/2012 - 00:36 | Link to Comment Vic Vinegar
Vic Vinegar's picture

If I were writing your comment I would have added 'hack, corrupt mayor' but excluded the 'illegal Mexicans' part.  The obesity at Walmart is full of people of all stripes, regardless of nationality or legal status.

But there are many good things in LA still too.  Rather than go into detail on that, I'm just gonna hope your comment propels more people to leave.  All the better.

Wed, 07/11/2012 - 21:58 | Link to Comment graneros
graneros's picture

I'm thinking the first medal handed out should go to none other than the host city's very own Barclays.  A gold medal for Lieborgate whatcha think?

Wed, 07/11/2012 - 21:58 | Link to Comment Sofa King
Sofa King's picture

Ahhh...The Olympics; what a time to sit back and listen to yourself get fat while enjoy a tasty Big Mac and refreshing soft drink from the event sponsors while watching the healthy people engage in fleeting sport.  Oh, I forgot, this is ZH; Flase flag event in 10, 9,...

Thu, 07/12/2012 - 03:03 | Link to Comment AnAnonymous
AnAnonymous's picture

watching the healthy people engage in fleeting sport.

_________________________

Loaded to the brain people. Which is not healthy.

US citizens, in order to foster consumption, have chosen to treat good health as a disease.

You are sick if you are panting after running 30 miles therefore your condition must be medicated.

Same as for the economy.

US citizenism at work.

Thu, 07/12/2012 - 06:08 | Link to Comment MillionDollarBoner_
MillionDollarBoner_'s picture

healthy people engage in fleeting sport

Yeah, how's that Lance Armstrong thing going? We got our bad boy Dwayne Chambers back on the team just in time for the crappy, low budget opening ceremony ;o)

Wed, 07/11/2012 - 22:03 | Link to Comment Arnold Ziffel
Arnold Ziffel's picture

This time is different.

Wed, 07/11/2012 - 22:12 | Link to Comment q99x2
q99x2's picture

It means that the Rothschilds and Rockefellers make deals while they are at the Olympics.

Wed, 07/11/2012 - 22:23 | Link to Comment dangni
dangni's picture

All these above factors contribute greatly to the emerging business of discount oakley sunglasses. Markets are simply flooded with varieties of sun spectacles to tap this growing segment of customers. cheap oakley sunglasses are sold for each and every age groups and come in array of colors, shape and design.  

Wed, 07/11/2012 - 22:32 | Link to Comment otto skorzeny
otto skorzeny's picture

douche

Wed, 07/11/2012 - 22:36 | Link to Comment knukles
knukles's picture

and Discount KY Jelly

Wed, 07/11/2012 - 22:51 | Link to Comment Hulk
Hulk's picture

Its astroglide now old man...

Wed, 07/11/2012 - 23:17 | Link to Comment knukles
knukles's picture

LOL
Now that's sort of like some of them athletes whose mommas couldn't spell none too good.

Like Andra or Andru for Andrew...

You get the picture.

Assholeglide.
Yeah, that's the ticket!

Wed, 07/11/2012 - 22:58 | Link to Comment Mark123
Mark123's picture

This article is a joke right?

 

If not, then it should be.  Nest we'll be reading about the shadow of the groundhog and it's impact on the Russel 2000.

Thu, 07/12/2012 - 00:35 | Link to Comment Vic Vinegar
Vic Vinegar's picture

Well buddy the chart shows we are six-for-six with Olympic countries outperforming the MSCI world index.  Your comment does nothing to make me think we can't go seven-and-seven.  It's just crazy enough to work!

Wed, 07/11/2012 - 23:11 | Link to Comment JohnKozac
JohnKozac's picture

We are heading into a rip roaring depression as the politicans and CBs fraudulate. I listenied to Bill Gross tonight on CNBC where he said unemployment will be higher next year and things will most likely get worse.

Olympics won't help it. UK is deep in debt and little growth there in the foreseeable future except for the financial center there that produces nothing but paper.

Thu, 07/12/2012 - 01:02 | Link to Comment otto skorzeny
otto skorzeny's picture

the olympics are a huge f-ing boondoggle that only enrich the the big building contractors/concrete companies

Thu, 07/12/2012 - 01:24 | Link to Comment jonjon831983
jonjon831983's picture

I don't subscribe to this, friend expects something big to happen during olympics (ie some sort of attack) and that the markets would take the tumble after it.  I guess conceivable since it is a major event.

 

Ah well.

Thu, 07/12/2012 - 02:01 | Link to Comment George Orwell
George Orwell's picture

The Olympics are a big reason why Greece is bankrupt today.  I read before that they spent upwards of $10 billion dollars building out the stadiums.  The stadiums are empty and derelict.  I'm suprised that this post doesn't link Keynsian economics to Olympic hype.  All the infrastructure spending is DEFICIT spending.  All for two weeks of sports.  Afterwards somebody has to pay the debt.

Greece stadiums now:

http://www.dailymail.co.uk/news/article-1036373/Abandoned-derelict-cover...

Chinese stadiums now:

http://www.nytimes.com/2010/02/07/weekinreview/07wines.html

 

Thu, 07/12/2012 - 06:19 | Link to Comment MillionDollarBoner_
MillionDollarBoner_'s picture

Have any of you ever been to Stratford? Yeah, Stratford, next to the Blackwall Tunnel, just up from Leyton, Forest Gate and Manor Park? All SHITHOLES. Always have been; always will be.

I once had to do a runner from a bedsit in Leyton when the landlady (Nigerian) threatened to break my legs. I had a knife held to my throat by a nutter just out of clink in Forest Gate. Stratford was and always will be a run-down mall surrounded by run-down housing estates.

Olympic legacy - don't make me larf!

Thu, 07/12/2012 - 08:08 | Link to Comment BeetleBailey
BeetleBailey's picture

The Modern Day Olympics: A HUGE distraction for the sheeple of the world - whilst the bank-fucks and poli-cunts do dastardly shit .

Thu, 07/12/2012 - 09:49 | Link to Comment tony wilson
tony wilson's picture

 uk can today only thieve via the city or export terror via war.

that is the growth market.

for mineral rich countries it is simple become the next libya or like norway pay  massive tribute protection money to avoid kaos

 

army on the streets of london

panic on the hackney downs.

they renamed big ben it is now called queen elizabeth towers such symbolism.

the new bond trailer is of interest.

tube train destruction heavy westminster bond bangs.

and then we have an sraeli security firm running the main olympic show.

911 towers and fukishima had israeli security.the cctv company that had many faulty cameras on london 77 bombings was israeli

 

if you where the puppet masters this olympic thing would be a poweful false flag.

retailiation on iran and syria would be immediate.

i believe time mag had a recent heroic foto of a fat mad man from israel with the title king bibi.

a gangsta as A KING.

an elite reset is coming the final theft and brutal control of the scum.

problem,reaction,solution.

thesis antithesis synthesis

MASONIC STYLE

the medievel period may soon be back

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