Defeats in football World Cup games, depressing enough for teams concerned, also weigh heavily on the stock markets in their home countries, a study to be published this month shows.
According to the study, to be carried in the Journal of Finance on June 29, a World Cup loss during a competition's group phase shaves an average 0.38% off a team's home stock market index. But during the knock-out phase of tournaments, markets fall by 0.49%, wiping billions off the value of investors' portfolios.
The study was conducted by American professors Alex Edmans of MIT and Diego Garcia of Dartmouth College, as well as Norwegian Oeyvind Norli of Oslo's business school.
They compared stock market indices of 39 footballing nations in the wake of World Cup and other major international matches between January 1973 and December 2004.
'We already know that the markets' supposed rationality is in fact influenced by the feelings of individuals and we worked on the basis that the feelings which universally affect the mood of investors are related to sport, especially to football,' Norli said.
While losses invariably affect stock market levels, victories don't necessarily cause a bull run, the study found, offering two explanations.
'Firstly, during a typical World Cup match victory simply takes you to the next stage while a defeat means you're out. There is more downside in defeat than is upside in victory,' Norli said.
'Secondly, one has to take into account the psychology of fans, who tend to overestimate their team's chances of success. In 2002, more than 80% of England fans thought that England would beat Brazil (in the quarter finals), while bookmakers gave England just a slightly more than 40% chance,' he said.
Brazil won that match 2-1 and went on to win the World Cup, beating Germany 2-0 in the final.
