Do Investors Use the Olympics as a Category for Investment and Should They?

Abstract

There is a seven year period between the time that a country first learns that it has won a bid to host the Olympics to the playing of the games. We investigate whether investors use the Olympics as a category for investment over this time period. We examine two hosting countries: China in 2008 and the UK in 2012, and identify a set of stocks from a broad range of industries that are mentioned by media outlets as either directly or indirectly involved in the Olympics. We find that in both countries, Olympic stocks exhibit increases in comovement of returns after the Olympics are announced and declines in comovement after the games are played. We also find that Olympic stocks earn large excess returns when the stock market has performed well, consistent with investors moving funds into these stocks after observing strong past stock price performance. However, these excess returns are lost in subsequent market downturns. Further, evidence suggests that the Olympic Games have little impact on cash flows or earnings. Overall, our evidence suggests that 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.