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Boom or bust

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.

Diego Garcia
Tuck school Professor Diego García, right, has authored a study linking international football match losses to diminished stock returns. (photo by Mark Washburn)

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."


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Last Updated: 12/17/08