World Cup Provides an Ideal Setting

Existing literature shows that the impacts of sleeplessness on the financial market yield mixed results, and uncertainty remains as to whether or not distraction leads to higher or lower stock returns. Prof. Ko points out that one major challenge is finding events with sufficiently long periods of distraction or large enough external shocks on sleeping patterns that may have a potential impact on the stock market.

A World Cup game lasts about two hours, sometimes even longer if there is extra time and penalties. Therefore, watching the games overnight will likely result in substantial sleep deprivation. Similarly, some fans might be distracted for an extended period by matches aired during trading hours. “The World Cup is a suitable setting to explore the influences of sleeplessness and distraction on the stock market,” says Prof. Ko.

Prof. Ko also stresses that using World Cup games to study distraction is significant because this factor is completely unrelated to the stock market, allowing the researchers to separate the impact of one factor from other factors.

The study used the time zone differences between the locations of the fans and the World Cup games to assess the impact of sleeplessness and distraction on the stock market. Prof. Ko and his collaborators collected data on market index returns for 16 countries from January 1, 1982, to December 31, 2018. These countries include winners, runners-up, and third- or fourth-place finishers in the World Cup tournaments during the sample period. They are considered countries with rich soccer traditions and stock markets known to be influenced by the games.

After analysing the data, the researchers found that both sleeplessness and distraction negatively influence stock markets. More specifically, the sample markets experienced a −26 basis-point daily return for a day of sleeplessness and a −22 basis-point return because of distraction.

Individual Investors Are More Affected

Researchers then further examined more details of these negative effects. They first found that individual investors are more affected by sleeplessness and distraction than institutional investors.

“Because of their training and focused work environment, professional investors are less susceptible to distractions and better able to get adequate sleep during events like the World Cup,” Prof. Ko explains.

He and his team then examined whether the impact of sleep deprivation varied depending on the degree of deprivation. The results indicated that compared to watching games overnight, watching evening games that disturb sleep schedules has a significantly lesser impact.

They also found that important games did not amplify the effects of sleeplessness and distraction on investors, indicating that game-induced emotions are unlikely to be the cause. Additionally, the hangover effect was also ruled out as an explanation for the observed sleeplessness and distraction effects.

Sleeplessness is a prevalent problem in the financial industry, where many practitioners frequently experience work-related stress and extended work hours, particularly in professions such as international trading. Additionally, distractions, such as breaking news and rumours, further compete for investors’ limited attention.

Prof. Ko notes that understanding how sleeplessness and distraction affect the stock market is crucial because it can provide insights into the influences of external factors and human behaviour on financial markets. “A better understanding of these effects can provide insights into explaining and even predicting market trends, helping people make more informed investment or trading decisions,” he says.

Recognise Risks, Make Wise Adjustments

“Overall, the consequences of these negative impacts on the stock market can be far-reaching, affecting not only investment strategies but also managerial decisions in various business settings,” Prof. Ko says. He suggests that investors and managers should recognise these risks and take steps to minimise them.

“Investors, therefore, should avoid making decisions when tired. Additionally, investors anticipating being tired or distracted may choose to delegate the execution of actual trades to a broker or use an algorithm to make decisions,” says Prof. Ko.

He also adds that their research indicates that distractions affect sellers more than buyers. Investors should, therefore, be more open to buying, and resist the urge to sell when tired.