Impact of soccer matches on stock market moods..

FIFA world cup fever is going to grip us soon. In other countries it must have but in India we currently have the election fever. So there is some time.

Came across this really interesting paper by Michael Ehrmannb of bank of Canada and David-Jan Jansenc of De Nederlandsche Bank. They try and figure the impact of soccer matches on stock markets. Best part is they track the stock market moods as the match enfolds using high intra-day data. They find (not surprisingly) that team which is about to lose sees a decline in stock prices:

 The end result of major sporting events has been shown to aff ect next-day stock returns through shifts in investor mood. By studying the soccer matches that led to the elimination of France and Italy fromthe 2010 FIFA World Cup, we show that mood-related pricing e ffects can materialize as sporting events unfold. We do this by using intra-day stock prices for a rm cross-listed on the Paris and Milan stock exchange. This strategy allows for a straightforward identi cation of pricing e ects. During the soccer matches, stock prices in the country that eventually loses are lower by up to seven basis points. The probability of underpricing increases as elimination from the tournament becomes more likely.

The paper has three interesting aspects:

First, we focus on investor mood during international soccer matches using intradaydata. As argued by Edmans, Garca and Norli (2007), soccer results are appealing measures of investor mood. In many countries, a large portion of the population intensively follows and passionately discusses soccer. However, evaluating the contemporaneous e ects of soccer results on mood and price formation is not straightforward. High-pro le international soccer matches often take place in the evenings or during weekends, when markets are closed. Also,for matches that do coincide with trading hours, intraday data is less readilyavailable than daily data. Accordingly, papers typcially study shifts in mood using daily returns for the day after the match (Edmans, Garca and Norli2007; Kaplanski and Levy 2010).3 In contrast, we study minute-by-minute data during the 2010 FIFA World Cup, a major sporting event that has attracted a lot of attention, even during trading hours (Ehrmann and Jansen 2012).

A second distinctive feature of this paper is the use of trading informationfor a cross-listed company, STMicroelectronics, which is included in the main index of both the Milan and Paris stock exchanges. For cross-listed stocks,in principle, the prices on both exchanges should be equal, since the stocks use high-frequency data from sports betting markets to study market eciency. Accordingly, we  use deviations from the parity between prices on the Milan and Paris stock exchanges to measure pricing anomalies. Since we can use only a limited number of matches during the 2010 World Cup, we have, in contrast to standard event studies, the considerable advantage of not having to rely on a particular model to determine abnormal stock returns (MacKinlay 1997).

The third distinctive feature is the paper’s focus on two particularly eventful matches, in which two high-pro le soccer nations were rather unexpectedly eliminated from the tournament. By using a stock that is traded in Milan and Paris, we naturally focus our attention on matches in which either Italy or France participated. Both nations have an impressive soccer tradition, and expectations were high for the 2010World Cup. After all, Italy was the defending champion, having beaten France on penalties in the 2006 nal. However, the 2010 tournament did not go well for either team: neither managed to qualify for the second stage. We focus on the two matches in the group stage that resulted in the elimination of France and Italy, expecting mood e ects to be particularly severe, in line with Edmans, Garca and Norli (2007).

Nice mixing of sports and economics. Always fun to read and tempting to copy the methodology on some other such experiment..

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