While the annual continental musical extravaganza that is the Eurovision Song Contest is often greeted by equal amounts of cheers and groans in homes across Europe every year, stock market watchers may want to take a closer look at the campy cacophony of musical acts as the outcome could prove instrumental in the performance of an investment portfolio.
That’s according to a research paper published last month by academics at Bar-Ilan University in Israel, which highlighted a positive swing in investor sentiment in the winning country, with a “positive abnormal return” of around 0.57% on the first trading day after the victory, which was then reversed several days later.
Commenting on the data on Friday, Liberum’s Joachim Klement said the trend of Eurovision victory boosting investor sentiment in the winning nation was “not surprising”, highlighting that other contests can produce similar results.
“We know that after a country wins the FIFA World Cup or the Euros, the local stock market gets a boost the next trading day because people in that country are not just hungover but also euphoric and more optimistic and increased optimism leads to higher risk-taking and a rally in stock markets”, Klement said.
However, the analyst also highlighted that the worst performing countries in the contest, such as the UK and Germany, while not incurring as high a sentiment shift as the winner, did still see a negative abnormal return of 0.07%.
“In other words, the UK and Germany would have to win the contest every eight years or so to make up for the dreadful impact acts like Jemini (UK entry 2003) or Electro Velvet (UK entry 2015), Ann Sophie (German entry 2015), or Levina (German entry 2017). And that seems really hard to do. So, let’s just pull out of the contest and enjoy the show that other countries put on. It would be much better for our national pride and our stock markets”, Klement concluded.