The economic impact of the Olympic Games: evidence from stock markets

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp08060.pdf Nontechnical SummaryThe Olympic Games usually involve substantial infrastructure investment and boost tourism to the host country. Therefore, the economic impact of the Olympic Games usually receives broad public alertness. However, a full evaluation of this economic impact is rather difficult, since such a mega event has short term and long term, as well as direct and indirect effects, which complicates the estimation of its costs and benefits.Stock market provides an alternative way of evaluating the economic impact of Olympic Games.The stock market, a barometer of the economy, is commonly believed to reflect the expectations for the economic outlook. Mega sports events are usually perceived to positively affect the host countries' economy. Hence, the announcement of the host city by the International Olympic Committee should result in a positive reaction of the stock market of the country which is awarded the sports event ("winner country") and in a negative one in those of their unsuccessful competitors ("losing countries").This paper studies the stock market reactions to the announcement of the Olympic Games host cities during the last three decades. We find a significant and positive announcement effect of hosting the Summer Games which is reflected in the returns (additional 2 percent cumulated over the following days). We do not find any significant results for the Winter Games. Neither do we detect a significant impact when bidders lose the competition. Our results differ from those of a similar study by Mirman and Sharma (2008), who find that the Winter Games are subject to a significantly negative announcement impact, while the Summer Games are not. Our results, however, rely on a larger sample of 15 Olympic events and are obtained by assessing the observed returns after the announcement against a "business-as-usual" situation (instead of testing the difference between the winner group and the loser group).Our findings are in line with economic intuition, since the Summer Games are larger than the Winter Games and are thus more likely to have a significant impact. We also find that among the winners, small economies tend to have greater cumulative abnormal returns than their large peers. AbstractBy means of an event study of stock market reactions to the announcement of the Olympic Games host cities, we find a significant and positive announcement effec...

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