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Why the stock market gets a red card during soccer’s World Cup

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As if the US stock market hasn’t had enough worries yet, it will have to contend with the World Cup in Qatar from November 20th to December 18th.

One can be forgiven for being skeptical that soccer tournaments have anything to do with the stock market. But you have to understand how disappointed the country’s investors would be after the team lost the World Cup. A significant piece of academic research has found that their despondency has a noticeable impact on the stock market.

This studySports sentiment and stock returns, conducted by Alex Edmunds Professor of Finance, London Business School. Diego Garcia of the University of Colorado Boulder and Oyvind Nolli of the Norwegian School of Management.

The professors analyzed stock market movements after more than 1,100 soccer games dating back to 1973. They found that, on average, after a World Cup loss for a particular country’s soccer team, the stock market produced significantly below average returns the following day. The professors found no corresponding positive effect on the stock markets of the countries in which the team won.

The logical consequence of this asymmetry is that global stock markets tend to underperform during the World Cup tournament. That is exactly what was confirmed by a subsequent study titled “Exploitable Predictable Irrationality: The Impact of the FIFA World Cup on the US Stock Market.” Guy Kaplansky, Bar-Ilan University, Israel and Haim Levy, Hebrew University, Jerusalem.

World Cups are held every four years, so we didn’t have much opportunity to test whether this World Cup effect persists outside the sample. However, as can be seen from the table below, the results recorded so far in this century are consistent with what these academic studies have found.

Average returns over the World Cup period starting in 2002

Average returns for all periods for comparable periods since 2002

DJ Global World Index

-0.45%

+0.48%

S&P500 Index

-0.97%

+0.69%

It’s worth emphasizing that the researchers aren’t suggesting it will be a short-term market timer of fully cashing out before the World Cup starts and finally returning to a fully invested stance. factors will no doubt also play a large, if not very large, role in explaining the direction of the stock market in the coming months.

The point researchers are trying to make instead is that our moods play a powerful role in investment decisions. I will tell you. As academic research on the World Cup effect points out, this is not always the case.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee for audits.he can be reached at [email protected]

more: This strategist picked the last two World Cup winners. He says who will win this time.

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