Does a country’s good Olympic performance lead to good performance in that country’s stock market? It shouldn’t, of course. Why would there be any relationship between gold medals and stock market performance?
But there is. Over the past 20 years, the countries that have won the most gold medals in the Olympics have seen their stock markets, on average, perform a lot better than the MSCI World Index, a global stock market index, in the months after the Olympics ended.
For instance, at the 1996 Summer Olympics in Atlanta, U.S., the United States won the most gold medals. In the year following the end of the Olympics (so, from August 4, 1996 to August 4, 1997), the MSCI World Index rose 26 percent. The S&P 500 rose 43 percent, outperforming the MSCI World by 17 percentage points.
China won the most gold medals at the 2008 Summer Olympics in Beijing and the party continued for Chinese stocks. The year following the Olympics, global markets plunged 19 percent. But the Shanghai Composite Index rose 25 percent, outperforming the MSCI World Index by 43 percentage points.
All in all, in six out of the 10 Olympic Games over the past 20 years, the stock market of the country with the most gold medals outperformed the MSCI World Index. On average, over the three months after the end of the Olympics, the top gold medal-winning country’s market outperformed the global index by 6 percentage points. After six months, they had also outperformed by 6 percentage points, and 4 points over the subsequent year. (Note that a lot of this outperformance is due to the strength of the Chinese market after the 2008 Olympics. However, even without this, post-Olympics markets still performed well.)
That kind of outperformance might not sound like a lot. But in the world of asset management, outperformance is measured in basis points (one basis point is a hundredth of a percentage point – so one percentage point is 100 basis points), and careers (and hedge fund manager fortunes) are made, or lost, with just a few dozen basis points of performance either way.
Why would the stock market of a country that won the most gold medals in a global sporting event perform well afterwards? Winning gold medals might be a sign of underlying health in a country’s economy. It could reflect that a country has sufficient means to invest in activities like sports, which bodes well for the advanced state of other parts of the country’s economy. But that’s pretty shaky.
As with a lot of quirks in markets – such as the January barometer, the Super Bowl indicator, sector rotation, and “sell in May and go away” – there often isn’t a good explanation. But just because there’s not a good reason for an investment phenomenon doesn’t mean investors can’t make money from it.
At the just-concluded Rio Olympics, the U.S. once again won the most gold medals. So, does that mean you should invest in the S&P 500 for the next year? Perhaps. So far this year, the S&P 500 is up 7 percent, and the MSCI World Index has gained 4 percent.
If the S&P 500 can keep up the outperformance, it could end up being a good post-Olympic year for U.S. stocks. To invest in the S&P 500, you can buy the Vanguard S&P 500 Index ETF on the Hong Kong exchange (code: 3140) or the SPDR S&P 500 ETF Trust on the New York Stock Exchange (ticker: SPY). You can also buy the SPDR S&P 500 ETF on the Singapore Exchange (code: S27).