The research, jointly carried out by Tuck, MIT and the Norwegian School of Management, found that the football-loss effect was stronger in World Cup games than in other championships. Stock markets dropped 39 basis points on average after a World Cup elimination loss, and 29 points after other losses.
The phenomenon is also more pronounced in 'football nations' like England, France, Spain or Germany, and on small stocks which tend to be held predominantly by local investors. Similar – although milder – effects have also been observed for international cricket, rugby and basketball games. Researchers also found no correlation between stock prices and football wins.
This research is the first of its kind to prove the powerful impact sports can have on investors' moods. "No other type of regular event has such a decisive impact on the mood of a nation as when their national football team loses a game," says Diego García, professor of business administration at Tuck and author of the research.
Researchers suggested shortening futures on both countries' indices before an important match to exploit the asymmetry effect. The type of events producing such drastic effects however, do not seem to occur regularly enough to have a portfolio fully dedicated to trading on them.
This is the latest in a series of research papers assessing the effect of the 'World Cup mania'. Companies the world over are already preparing for a bout of 'worldcupitis' as employees skip work to watch their favourite teams. Some, cunningly, have already made provisions to show the games at work, while others are preparing to bank on it, from pubs and restaurants to sponsors and advertisers.
Source: Sports sentiment and stock returns
Alex Edmans, Diego García and Øyvin Norli
Sloan School of Management at MIT, Tuck School of Business at Dartmouth, Norwegian School of Management
Review by Emilie Filou