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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
In academia there are no silly questions, though there are silly papers:
This study explores whether national cricket performance can influence investors sentiments in such a manner that impacts on market returns.
The research — by Michen Govender and Godfrey Ndlovu of University of Cape Town, South Africa — concludes that no, it mostly can’t.
[T]he results indicate that cricket performances in all countries, besides Pakistan, does not significantly explain abnormal market returns. The insignificant relationship observed in other countries could be attributed to a large proportion of foreign based investors, whose interests are not aligned with the success of domestic national team performance.
What’s new here is cricket.
There’s already lots of research about football’s short-term effect on stock markets. The theme’s seminal paper, by John Ashton et al (2003), found a “strong association” between England’s international results and the FTSE 100. Lots of economists challenged its findings, having failed to replicate them, so its authors re-ran the experiment in 2011 with a bigger data set and a much weaker conclusion.
Other research has focused on defeat. Highlights include Sports Sentiment and Stock Returns (2007), which identifies “a significant market decline after soccer losses”, and You Lose, I Feel Better (2016), a study of how interclub schadenfreude affects investment decisions.
More recent studies have failed to show a clear link between performance on the pitch and the market, though there’s some evidence that World Cup appearances can help sell national ETFs.
Cricket offers a new perspective because, as a spectator sport, it’s most popular in nations whose international football teams rarely put in performances worth watching: India, Pakistan, South Africa, Australia, New Zealand and England. And since these six countries are divided equally between emerging markets and developed markets, cricket can be used to measure whether stock trading is more emotionally charged in the former or the latter.
That’s the idea of the study anyway. But what it shows is very little.
Govender et al take results from all major International Cricket Council daytime events from 1991 and 2018 and compare them to the relevant stock benchmark’s daily performance.
Statisticians might enjoy the results chart below; for everyone else, it’s probably enough to know that correlations shown are vanishingly small.
Weak correlations stem from a flawed premise. Stock benchmark performances rarely communicate much about their host country’s population. UK companies don’t dominate the FTSE 100 and fund flows from UK nationals barely move the dial domestically, for example. Even if they did, the cohort includes four countries and myriad nationalities, whose emotional response to an England defeat is not uniform.
Pakistan is a (barely significant) sort-of outlier in the above table. It’s “a country in which the majority of economic interest is generated internally”, the authors say.
Their (slightly) more significant finding is about cricket in general. Local stock markets tend to underperform after the men’s team plays and rise after the women’s teams plays, irrespective of the result.
Over-confidence maybe? The six countries in the study are cricket’s elite. Perhaps fans assume their men’s teams will win every game, so are more excited about defeats than victories, but will be pleasantly surprised when the women do well, the paper suggests.
It also raises “the possibility of supporters hedging their bets such that they bet against their team on the stock market, thus ensuring that their overall emotional outcome is diluted”.
Um, possibly? A possible topic for future research.
More importantly: “no difference can be found between developed and developing countries in terms of the Efficient Market Hypothesis holding, as cricket performance explains a very small proportion of market returns”, it says.
The inability of cricket results in sufficiently affecting market returns in the other five countries could be due to a large proportion of economic interest on their stock markets being foreign based, with investors who are not interested in the success of that nations national teams. Looking at South Africa in particular, macroeconomic factors such as the exchange rate as well as political insecurities could furthermore overshadow the effects of domestic national cricket performance.
All out.