Investor Sentiment and the Eurovision Song Contest

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The summer is slowly approaching; therefore, our new article will be on a little lighter tone. We will examine a research paper on a periodic event with sentiment implications:

International events, such as sports tournaments and talent competitions, can affect stock market prices by changing investor mood. Many studies have examined the influence of investor sentiment on future cash flows and investment risks. The authors focused on a specific song competition – the Eurovision Song Contest, an international song competition organized annually. Every year approximately 40 delegations represent their country in the contest. The participants compete for one evening, followed by the winner announcement. No surprise, the grand finale is viewed by tens of millions of people worldwide, and the victory in the competition creates common feelings of national pride.

The authors of the recent academic paper (Abudy, Mugerman, Shust) examined a positive swing in investor mood in the winning country the day after the Eurovision Song Contest and documented an average abnormal return of 0.381%. On the contrary, they did not find any negative sentiment in other participating countries. To check the robustness, they applied a placebo test. The results confirmed that obtaining such an abnormal return accidentally is negligible. Additionally, the authors concluded that the positive sentiment is unique to the winning country and is not affected by other events that occur at the same time. Finally, they examined if the positive effect comes from expected economic benefits rather than investor sentiment. The test disproved this assumption and stated that the positive change acquired from an unexpected positive boost in investor mood. Last but not least, according to the authors, the positive effect is reversed within days.

Authors: Menachem (Meni) AbudyYevgeny Mugerman and Efrat Shust

Title: The Winner Takes It All: Investor Sentiment and the Eurovision Song Contest



This paper investigates the stock market reaction to a change in investor mood following the Eurovision Song Contest—an annual international song competition and one of the most watched non-sporting events globally. Contrary to existing literature on international competitions, we find a positive swing in investor sentiment in the winning country. The elevated atmosphere is reflected in a positive abnormal return of approximately 0.35% on the first trading day after the victory. This finding is robust to various event-study methods and to various benchmarks. This positive return is reversed several days later. Further, we do not find any indication of negative sentiment in other participating countries; specifically, in countries perceived as the losers of the contest. Finally, we do not find any indication that the positive market reaction reflects economic benefits stemming from a victory. Overall, we conjecture that a competition structure is an important determinant of investor sentiment in stock markets.

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