How the winter games affect economies

At Dusted, we enjoy winter sports and the games associated with them, but how do the winter games affect businesses and the economy?

Last year, South Korean shares in casino and resort operators and construction firms spiked due to the expectation that the Winter games in Pyeongchang would pump tens of billions of dollars into the economy.

The Hyundai Research Institute estimated that the games would add KRW₩64.9 trillion (GBP£43.1 billion) to the nation’s economy. But with ticket sales lower than expected – partly due to cold weather, the absence of Russia, and tensions between North and South Korea – it’s unclear as to how the overall impact of the games will affect South Korea. Some are suggesting that the inclusion of North Korea in the games is so significant that it could cause a boost to tickets and viewership. Despite the uncertainty, it is possible to make predictions about economic activity during the games.

A recent study by academics at Nottingham Trent University and the University of East Anglia has found there are certain parallels between a nation winning medals and their economy. The study found that when a nation wins a medal, national stock market activity drops. In the US, for each gold medal win the trading volume in the S&P 500 drops by 3% the next day. Other nations have even greater drops, such as Germany and South Korea, whose trading drops by 6.7% and 7.3%, respectively.

One of the reasons for this is thought to be that attention is taken away from trading and redirected to the games. The better a nation is doing in an event, the more distracted that nation’s audience is likely to be. With the same logic, the rarer it is for a nation to win a medal, the more significant it will be when they do, so the distraction will be even greater.

Distractions are to be expected during large competitive events such as the Winter games. After all, they have been used throughout history as a method of distraction – much like the games during the Roman empire. That’s not the intention of South Korea, though, who hope the games will boost the economy with almost USD$40 billion in economic benefits. It’s not unreasonable to think the Winter games will help, considering the 1988 Seoul games and the 2002 World Cup both helped to stimulate the nation’s economy.

The global economy is always in flux and being able to keep track and make predictions about which markets will be affected in what way is a valuable resource for anyone working in finance. With the Winter games, fluctuations become that much easier to predict and potentially exploit, so it’s worth keeping track of the event if you work in the industry.

It’s important to note that, despite the reduction in trading after a medal win, stock market returns tend to remain unchanged. With this new study into the relationship between economics and the Winter games, can financial experts use this data to exploit for profit?

 

Image by Mason Jones.