World Cup has striking effect on activity in financial markets
In sport and in trade, it is all about winning and losing – and financial investments are affected by both
Messi business: Lionel Messi of Argentina celebrates scoring his team’s winner against Iran. Academic studies have shown that there is a big difference between wins and losses, with the latter followed by an increase in heart attacks, crimes and suicides. Photograph: Ronald Martinez/Getty Images
More than three billion people across the globe are expected to tune into the World Cup. With roughly half of the world’s population following the event, might football fever even influence the international investment community?
Probably. The World Cup has been found to have all kinds of effects on financial markets, with events on the pitch shaping the moods of those in the trading pits.
Trading volumes plummetDuring the last World Cup in 2010, the number of trades made when the national team was playing fell by 45 per cent, according to an ECB study of 15 international stock exchanges. An additional 5 per cent drop in trading activity was recorded when a goal was scored.
Trading fell 38 per cent in European countries and 43 per cent in the US, but it was in football-mad South America where the biggest effect was seen. Trading fell by 75 per cent in Brazil when its national team was playing and by 79 per cent in Argentina. In Chile, trading all but ceased, falling an incredible 99 per cent during matches involving the national team. Chileans were even likely to focus on the pitch rather than the pit during matches involving other countries, when trading fell by 79 per cent.
Winner’s honeymoon bounceThe World Cup-winning country typically sees its stock index outperform global indices by 3.5 per cent over the following month, according to a recent Goldman Sachs report. Since 1974, the winners have outperformed on all but one occasion, recession woes plaguing Brazilian indices in 2002.
However, the boost is a short-lived affair, fading “significantly” after three months. In fact, the winning country actually underperforms by 4 per cent over the following year, according to the report.
Losers lose in the marketsGoldman’s report found seven of the last nine losing World Cup finalists suffer a “post-final bout of the blues”, underperforming by 5.6 per cent over the following three months.
Another study, Sports Sentiment and Stock Returns, which examined 1,100 football matches and stock returns in 39 countries, found a loss in the elimination stage leads to the national market falling by 0.5 per cent the next day.
It’s not that losing has especially damaging economic consequences, say researchers; it simply influences investor mood. That’s why the loss effect is stronger in the World Cup than the European Championships, and is more obvious after important games and among smaller stocks, especially in football-mad countries like Argentina, Brazil, England, France, Germany, Italy, and Spain. A similar one-day effect can be found after cricket, rugby, and basketball losses, the study found.