World Cup fans may want to ease up on trading

Discouraged after a big loss Monday, Spanish investors took their frustrations out on the stock market. That behavior is not unusual.

By MSN Money Partner Jun 17, 2014 4:40PM
By Mark Hulbert, MarketWatch

Here's some important investment advice if you are a die-hard soccer fan: Take a break during the World Cup.

If you're like most soccer-crazed investors, you are prone to act irrationally when your favorite team loses -- such as letting your despair lead you into selling indiscriminately.

Just take Spain, the defending World Cup champion, which suffered a stunning upset last Friday night at the hands of Netherlands. Spain was humiliated, losing 5 to 1.

On Monday, the first trading session in the wake of that loss, Spanish stocks fell 1 percent (as judged by the FTSE Spain index). That's more than double the 0.42 percent loss suffered by the European market as a whole.

Nor was Spanish investors' behavior unusual. Consider a rigorous academic study that appeared in the August 2007 issue of the prestigious Journal of Finance. The study, "Sports Sentiment and Stock Returns," was conducted by finance professors Alex Edmans of the Wharton School of the University of Pennsylvania; Diego Garcia of the University of North Carolina (Chapel Hill); and Oyvind Norli of the Norwegian School of Management.

After studying more than 1,100 soccer matches, the researchers found that, on average, a given country's loss in the World Cup elimination stage is followed by its stock market the next day producing a return that is significantly below average.

Not surprisingly, the researchers could find no rational explanation for the lower returns. They therefore concluded that those diminished returns were caused by the "impact of sports results on investor mood."

Other than reminding us all of the crucial role our moods play in investing, is there any specific way to exploit this research? That seems impossible, unless you knew in advance which teams were going to lose.

But perhaps there is a way. That's because the professors found no corresponding positive market effect for countries whose soccer teams win. The reason for this, they speculate: A win merely means that a country's team advances to the next round, while elimination is final. So losing teams' fans are likely to be more despondent than winning teams' fans will be exuberant.

The logical consequence of this asymmetry: Stocks around the world should experience above-average amounts of selling throughout the World Cup and, therefore, below-average returns. And, sure enough, that is exactly what was found by another academic study, this one by Guy Kaplanski of the Bar-Ilan University in Israel and Haim Levy of the Hebrew University of Jerusalem.

For example, they found that "the average return on the U.S. market over the World Cup period is minus 2.58 percent, compared to plus 1.21 percent for all-days average returns over the same period length."

By the way, over the first three days of this year’s World Cup alone, the Standard & Poor's 500 Index ($INX) has already fallen 0.3 percent.

The bottom line? Maybe all investors -- not just diehard soccer fans -- should take a break from investing until the World Cup is over in mid-July.

More from MarketWatch



Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

125 rated 1
264 rated 2
485 rated 3
679 rated 4
640 rated 5
617 rated 6
632 rated 7
493 rated 8
276 rated 9
153 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.