During their recent episode, Taylor, Carlisle, and Alex Edmans discussed Can a World Cup Loss Move the Stock Market?. Here’s an excerpt from the episode:
Now, clearly, if I found this in one game or 10 games, or even 100 games, I could have got lucky. So I looked at 1,150 games. What I found was a systematic pattern.
When a country gets eliminated from the World Cup, then the market goes down by, on average, half a percent, even when you control for the energy field or momentum, which is what the market did on the last day, and many other factors. Did that persist through the most recent World Cup? Yeah.
So interesting, when England was knocked out by Argentina, the market on the open on the Monday, even though there was positive economic news. And if you look at Yahoo Finance, which is a respectable source of news, they were attributing it, in part, due to the World Cup defeat. So actually, even Yahoo Finance, which you might think would only look at fundamentals, they were seeing that sentiment did matter.
I did not do a systematic analysis of this World Cup. But in 2014, which was after my paper was written, so I didn’t have that data in my original paper, I was on CNN. Richard Quest interviewed me right at the start.
And when I explained this to him, it was crazy. He thought there’s no way that this could be true. But he was open-minded, and I started to convince him over the course of the interview.
And he said to me, often, that was a great interview. I was really sceptical. Keep in touch with me and tell me what’s happening over the course of the World Cup.
And if things are going as you predict, then I’ll have you back on. And he had me on two more times. So in most cases, actually, things did pan out as they did.
With one big exception, which is when Brazil lost 7-1 to Germany. So even though this was 12 years ago, it may still be such a shocking result. Actually, the market went up.
Why? For a different reason. The president of Brazil, Dilma Rousseff, she had her identity linked to the team.
She’d built a lot of stadiums, which were earmarked for schools and hospitals. And so the view was that if Brazil got knocked out really badly, she might not last another presidency. And because she was seen as left-wing, then that was seen as good for the economy.
So again, soccer mattered in that case, but actually more for fundamental, rational reasons rather than sentiment.
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