However, victories do not show a corresponding rise.
Øyvind Norli, an associate professor at BI Norwegian School of Management, Diego Garcia from the Tuck School of Business at Dartmouth and Alex Edmans from MIT have conducted comprehensive research into the connection between results of international football games and returns on national share indexes.
Sports results affect people’s moods, including those who deal in shares. How does the stock market react to sharp changes in investors’ moods? This was the question asked by the three research workers, who conducted a thorough investigation into whether share rates are affected by the moods of buyers and sellers in a particular market.
Norli & Co studied international football results for the period 1973 to 2004, looking at qualifiers, group matches and the final rounds of the FIFA World Cup and Cup games played in Europe, Asia and South America. The data covers matches played in a total of 39 footballing countries, i.e. those which have historically made a mark for themselves in the World Cup.
The results were published in the article “Sports Sentiment and Stock Returns” in the well known professional periodical Journal of Finance.
Losing in the final round of the World Cup causes an average loss of 0.38% in the main share index of the country in question. Here the researchers took account of movement patterns in the international shares market generally and only measured the abnormal rate change after the game. “We found that there was a dramatic fall in the share market after an important football match was lost,” declares Norli.
A stock exchange fall of 0.38% may not sound very much, but compared with positive average daily returns of about 0.06%, the football-related fall in the share market is substantial both statistically and financially. Norli and his colleagues also documented similar loss effects in other important international sports, such as cricket, rugby, ice hockey and basketball.
Norli explains, “The fall in the share market can be regarded as the result of a change in how investors see the future. Losing an important international football match creates a general feeling of pessimism among the inhabitants of a country, and naturally a pessimistic investor will revise his view of what companies quoted on the stock exchange are worth.”
But even if investors are in a much better mood if the national team wins an important World Cup game, this does not result in a rate rise.
Øyvind Norli is an associate professor in the Department of Financial Economics at BI Norwegian School of Management. The article “Sports Sentiment and Stock Returns” was written by him in collaboration with Diego Garcia and Alex Edmans and accepted for publication by the respected professional Journal of Finance.
Oyvind Norli | alfa
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