Economics & Finance

World Cup Effect: How Do Sleeplessness and Distraction Affect Stocks?

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Using the World Cup as a proxy, a study shows that lack of sleep from staying up at night and being distracted during trading hours leads to considerably negative stock returns

Have you ever waited until midnight just for a World Cup game? As a highly anticipated global event held every four years, the grand tournament captures the attention of millions worldwide. In addition to the competition itself, the volatility of stock prices during the game has also been the focus of numerous investors and economists.

Previous research indicates that the outcome of the World Cup and trading activity changes in response to different stages of the game can significantly influence the stock market. However, given that the games take place at different times around the world, will global investors watching it be affected by lack of sleep or distractions during working hours? Are these effects positive or negative? Ko Chiu-yu, Associate Professor of the Department of Decisions, Operations, and Technology at The Chinese University of Hong Kong (CUHK) Business School, sought to find the answers in his latest study.

A better understanding of how sleeplessness and distraction affect the stock market can provide insights into explaining and even predicting market trends, helping people make more informed investment or trading decisions.

Prof. Ko Chiu-yu

The study titled Sleeplessness, distraction, and stock market performance: Evidence from the World Cup was conducted by Prof. Ko, in collaboration with Prof. Jinghan Cai from the University of Scranton and Dr. Manyi Fan from Singapore University of Social Sciences.

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.

The World Cup is a highly anticipated global event, which captures the attention of millions worldwide.

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.

The researchers found that both sleeplessness and distraction negatively influence stock markets.

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

The study suggests that investors should avoid making decisions when tired.

“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.


Are Credit Expansions to Blame for Stock Market Exuberance?

Addressing the companies’ perspective, Prof. Ko suggests that they should consider implementing policies that minimise the impact of sleeplessness and distraction on employee decision-making, such as flexible work arrangements or limiting communication at night.

While exploring information and staying busy have become the norm of modern life, people may not be aware of the influences of sleep deprivation and distractions. Prof. Ko emphasises that these influences should not be ignored. “It is crucial to remind ourselves that external factors can greatly impact our decision-making abilities, and we must be cautious when we find ourselves in such situations.”