Tuck research links football matches and stock trading
In the first large sample study to find a direct link between a leisure
activity and stock trading, research by
Diego García, Assistant Professor of Business Administration at Tuck school, with Øyvind Norli (Norwegian School of
Management) and Alex Edmans (MIT), has
found that international football (soccer) matches have a significant influence
on stock markets.
Tuck school Professor Diego García, right, has authored a study linking
international football match losses to diminished stock returns. (photo by Mark
Washburn)
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According to the study, stock returns are significantly lower after the
national team loses a match in an international football competition. This
football-loss effect is stronger in World Cup games than in other international
championships, and in elimination stages as compared with group games. Stock
markets drop 39 basis points on average after a World Cup elimination loss, and
29 basis points after any elimination loss.
This phenomenon is most pronounced in countries where a large portion of the
population follows football, namely England, France, Germany, Italy and Spain.
These five countries account for 79 percent of the European football market
revenue. The effect is also particularly strong in other southern European
nations, as well as in South America. By contrasts, the authors found no
evidence of a similar effect after wins.
Previous studies of mood and aggregate stock prices that found similar
effects on the stock market have examined only physical or seasonal phenomena,
such as weather or lunar cycles. The authors chose to study football because of
the extensive psychological evidence on the effect of sport results on mood.
"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," said García.
By controlling for the financial side effects of the expected outcome of the
game, the researchers were able to attribute the football-loss effect to the
impact of football on investor moods and not to expected economic explanations,
such as reduced productivity or lost revenue.
"People often believe economics is a rational and calculated science.
Studies such as ours show that there are forces influencing our economies that
have little to do with rational thought," said García. "Sports are an extremely
popular weekend activity and though they are seemingly unrelated to finances
and stocks, Sunday's match could potentially have an important effect on
Monday's opening stock prices."
By KIM KEATING
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