The World Cup Effect!

The World Cup is upon us! Just a few days left until the biggest sports event on earth gets underway. Soccer hysteria will take over daily life in many countries of the world. Today, I will try to answer one simple question; ‘Does the World Cup affect stock markets?’

Defeat means loss

A ground-breaking study on the relationship between the World Cup and stock market returns is that of Edmans, Garcia and Norli (2007). Their hypothesis is that, if there is something like a ‘World Cup effect’, the best way to look for it is on the stock markets of the countries that are competing. And they are right. Their analysis comprises the final scores of roughly 1100 games, including 39 different countries. And it reveals that, the day after a country loses, the stock market of that country produces a, statistically significant, negative abnormal return (the local market return adjusted for the overall market return). Hence, disappointment on the soccer pitch leads to a bearish sentiment on the market.

Now, why are Edmans, Garcia and Norli (2007) convinced it is indeed the result of the game that is reflected in the negative return the day after? Well, first, because the size of the negative return surges as the importance of the game increases. A defeat in the knock out phase of the World Cup results in a negative return that is four times bigger than the negative return that follows after a loss in a qualifying game, preceding the tournament. Second, no abnormal return was observed the day after a country wins the game. This complies with the generally accepted notion that the effect of a loss, be it on the stock market or on the pitch, is much more pronounced than that of a win. People prefer avoiding losses to making gains. Third, the World Cup’s set up is asymmetric by nature. A defeat leads to immediate elimination in most cases, while a win only helps you advance to the next round. Except for the final, of course.

Soccer mood swings

De Nederlandsche Bank, de Dutch central bank, also employs some soccer fanatics. In a recent study, Ehrmann & Jansen (2014) try to get a grip on stock market developments related to the World Cup that become visible while the games are being played. Their main result is interesting, to say the least. During World Cup matches, the stock market of a single country will instantly reflect circumstances in which that country ends up in a hopeless position to win, or to advance.

To build their case, Ehrmann & Jansen use minute-by-minute data on the share price of STMicroelectronics during two deciding, group stage, matches of France and Italy at the World Cup 2010 in South Africa. STMicroelectronics is traded both on the stock exchange of Milan and Paris. Normally, the difference between the quotes on both exchanges is negligible. This makes it a perfect instrument to find out what happens when a team is about to lose at the World Cup.

France lost its final group match in 2010 to South Africa, final score 2-1, and were thrown out of the tournament. Both times at which South Africa managed to score, the price of STMicroelectronics went down sharply in Paris. In Milan, however, there was no such price move. For a short while, immediately after the hopes of the French were literally shot to pieces, a statistically significant gap opened up between the share price of STMicroelectronics in Paris and Milan. And, when Italy got eliminated from the tournament, losing 3-2 to Slovakia two days later, the exact opposite happened. In this case the share price of STMicroelectronics sank in Milan, and there was no such move in Paris. Therefore, soccer related mood swings are immediately reflected in the stock market of losing countries, as concluded by Ehrmann & Jansen.

There can be only one

Kaplanski & Levy (2008) take another, interesting, angle to determine the relationship between the World Cup and stock market returns. Probably, soccer fans do not only invest in their home market. Therefore, Kaplanski & Levy assume that the negative effect of losing a World Cup match will not be limited to local stock markets. The contrary, since all, but one, of the participating countries will lose at some point, it sounds plausible to expect something of a global effect. For Kaplanski & Levy, the US equity market, representing the world’s biggest stock market, is the obvious market of choice to test their hypothesis. The result? Taking the returns of all World Cups between 1950 and 2006, they find an average decline of 2.5% for US stocks during the month the World Cup is played. This compares with an average monthly rise of the US stock market of 1.2%, based on all months in the data sample. That is a pretty significant difference of 3.7%. Apparently, investing soccer fans take their frustration over a loss at the World Cup (also) out on the stock market.

One nicety to round things up. What about the hosting nation? Could that country avoid the return losses that occur during the World Cup? The answer is no. The average return on the stock market of the host nation does not statistically differ from the overall average. This is despite the fact that the home team has won the World Cup quite a few times. The some holds for the Olympics, by the way. Hosting the Olympic Games, like hosting the World Cup, is no guarantee for an above average stock market return. Fortunately, the party is always on in Brazil.


Edmans, A., Garcia, D. and Norli, Ø. (2007), Sports Sentiment and Stock Returns. The Journal of Finance, 62: 1967–1998. doi: 10.1111/j.1540-6261.2007.01262.x

Ehrmann, M., Jansen, D, (2014), It hurts (stock prices) when your team is about to lose a soccer match, DNB Working Paper.

Kaplanski, G., and H. Levy. (2008), Exploitable Predictable Irrationality: The FIFA World Cup Effect on the U.S. Stock Market, Working Paper.

Zawadzki, K, (2013), The impact of mega sports events on the stock markets

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s