- The Washington Times - Wednesday, June 21, 2006

OSLO (Agence France-Presse) — Defeats in World Cup games, depressing enough for the teams themselves, also weigh heavily on the stock markets in their home countries, according to a study to be published this month.

According to the study, scheduled for the June 29 issue of the Journal of Finance, a World Cup loss during the group phase shaves an average 0.38 percent off a team’s home stock market index. But during the knockout phase, markets fall by 0.49 percent, wiping billions of dollars off the value of investors’ portfolios.

“To put the results in perspective, 40 basis points (0.40 percent) of the [British] market capitalization as of November 2005 is $11.5 billion. This is approximately three times the total market value of all the soccer clubs belonging to the English Premier League,” the authors of the study said.

The study was conducted by American professors Alex Edmans of the Massachusetts Institute of Technology and Diego Garcia of Dartmouth College, as well as Norwegian Oeyvind Norli of Oslo’s business school.

They compared stock market indices of 39 soccer nations in the wake of World Cup and other major international matches between January 1973 and December 2004.

“We already know that the markets’ supposed rationality is in fact influenced by the feelings of individuals, and we worked on the basis that the feelings which universally affect the mood of investors are related to sport, especially to [soccer],” Mr. Norli said.

While losses invariably affect stock market levels, victories don’t necessarily cause a bull run, the study found, offering two explanations.

“Firstly, during a typical World Cup match, victory simply takes you to the next stage while a defeat means you’re out. There is more downside in defeat than is upside in victory,” Mr. Norli said.

“Secondly, one has to take into account the psychology of fans, who tend to overestimate their team’s chances of success.

In 2002, more than 80 percent of England fans thought that England would beat Brazil [in the quarter finals], while bookmakers gave England just a slightly more than 40 percent chance,” he said.

Brazil won that match 2-1 and went on to win the World Cup, beating Germany 2-0 in the final.

Previous studies showed that England’s defeat by Argentina in a penalty shoot-out in 1998 caused a 25 percent increase in heart attacks in Britain, and that homicide rates fluctuate in U.S. cities according to American football results.

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