March Madness busts brackets. That much is tradition. What’s less obvious is that it also busts portfolios.

A growing body of behavioral economics research suggests that when your team flames out of the NCAA tournament, you don’t just sulk — you make worse decisions with your money. A study by Marcin Krolikowski found that stocks of companies located near eliminated teams’ campuses drop by an average of 41 basis points after an upset loss. Not because anything changed about those companies. Because the investors nearby were in a bad mood.

The effect isn’t subtle. It’s strongest in small-cap stocks, intensifies in later tournament rounds when the stakes feel higher, and gets worse the closer the investors are to campus. The landmark 2007 study by Edmans, Garcia, and Norli in The Journal of Finance documented the same pattern globally: sports losses — soccer, cricket, rugby, basketball — reliably correlate with next-day market declines.

The Emotional Portfolio

The mechanism is straightforward. Tournament upsets trigger what psychologists call negative mood bias — a general irritability that bleeds into unrelated decisions. Retail investors, already prone to overtrading, become more likely to panic-sell or chase momentum plays when they’re emotionally rattled.

The practical advice, as MarketWatch recently put it: sit on your hands until April 6, when the championship game wraps and the collective sports-induced fog lifts. Don’t rebalance during the tournament. Don’t check your brokerage app at halftime. Let the madness stay on the court.

Your bracket is already doomed. Your 401(k) doesn’t have to be.

Sources