BackThe day trader’s guide to cricket World Cup
How the Indian cricket team's loss or win in one-day internationals impacts the daily stock market returns
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This column will have one eye on the cricket score on Thursday apart from the usual stock tickers. After all, it is not every day that India plays a World Cup semi-final. But perhaps we should just focus on the cricket, say some experts in behavioural finance.
That subject posits that people’s judgement can be swayed by their moods or public sentiment after an event like a cricket match. In a 2002 paper with the self-explanatory title Cricket, Colonialism and the Capital Market: Winning Does Not Matter but Losing Hurts, R. Srinivasan, a professor at the Indian Institute of Management, Bangalore, says there is a significant negative impact on daily stock market returns when the national team loses one-day internationals. He arrived at his conclusions after looking at data between 1990 and 2001. A loss presumably triggers a bout of sorrow and anger which leads to impulsive selling. The paper also says, “losing in India matters somewhat more than losing outside. The mood induced by losing a match appears to conditioned by history, in that losing to nations that represent the ‘colonizers’ matters but not losing to nations that share India’s experience of being ‘colonized’’.’ The ‘colonizer’ nations are not just the British, but apparently also Australia, New Zealand and South Africa. Srinivasan finds, counter-intuitively, that losing to Pakistan doesn’t matter.
A 2010 study by Vinod Mishra and Russell Smyth of Monash University, looking at games between 1995 and 2005, arrived at the same conclusion that while a win has no impact on the Indian stock market, a loss does. It further added that when Sachin Tendulkar played, the size of the downward movement in returns was larger.
Of course, this heady cocktail of cricket and economics ensures there will be all kinds of opinions. A team from Deakin University which looked at both Indian and Australian stock markets from 1990 to 2011 concluded that match results do not have any impact on respective stock returns. However, it added that trading volume gets significantly affected when two of the star Indian cricketers scored 10 or fewer runs.
Perhaps the best course of action for equity bulls to protect their downside is to hope for an Indian victory on Thursday. And if we lose, they should pray that foreign institutional investors and high-flying fund managers are not big fans of Indian cricket.
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