The Global Effect of the FIFA World Cup on the Stock Market

Original source: SimoleonSense.com .

Talk about correlation causation problems…I’m not sure what to think about this.

H.T. Money Science

Abstract

Recent studies show that psychology and mood affect stock prices. With increasing stress investors become more risk averse, and are therefore inclined to sell stocks. As regards to the World Cup soccer games, the stress of the fans of a losing country leads to extreme phenomena, e.g. an increase in heart attack rates, changes in workers productivity, etc. We show that alongside the local effect, the World Cup sporting event is also associated with a long lasting global effect, i.e. with substantial low returns in the U.S. stock market. Investigating eleven World Cup events during a period of 41 years, reveals that the average return on the U.S. market over the World Cup’s global effect period is -6.25% (-46.6% annually!) relative to +1.27% (10.6% annually), corresponding to all-days average returns for the same period length. These results are statistically highly significant and stable under rigorous robustness checks. We suggest an investment strategy to exploit this effect that not only increases the mean return, but also increases expected utility.

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