Beware the World Cup’s effect on markets

The World Cup’s effect on the stock market proves investors’ emotions can trump reason.

Spain’s 5-1 defeat against the Netherlands last week is a clear example. The next trading day after the match, Spanish stocks fell, reports MSN.

Read: Winning clients on the soccer field

The evidence isn’t just anecdotal—a research paper published in the Journal of Finance found that a loss during the World Cup’s resulted in an abnormal stock return of -49 basis points the next day. The more important the game, the greater the loss. Small stocks are particularly vulnerable to match results, the researchers note.

The effect isn’t limited to the outcome of soccer games, the researchers also found similar effects after international cricket, basketball and rugby games.

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Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.