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Markets face down days after World Cup ousters

MIT student coauthors study linking soccer losses to sluggish stocks

If France's soccer team loses Sunday's World Cup final, a particularly sad place in Paris will be the city's Bourse stock exchange near the Louvre museum. Conversely, watch for a tough day in Milan's Borsa Italiana stock exchange if Italy's team doesn't prevail.

These predictions are based on research at the Massachusetts Institute of Technology and elsewhere that finds that on the first trading day after a country's team is eliminated from the World Cup, its national stock index on average lags about a half percentage point. That doesn't mean the market necessarily falls. It means the national index will perform 0.49 percent worse than it otherwise would, all other conditions being the same.

Is it really possible that big-time investors' disappointment over the outcome of a game would put them in such a bad mood that they would bid down stocks? Yes, according to Alex Edmans , an MIT graduate student and co author of the research.

``The thinking was that the big money managers are dispassionate, but here, we've shown even the important people are not computers," Edmans said. ``Even though they're professional investors, and you might think their day job is to watch the fundamentals, they are human beings."

Edmans' study has received a lot of attention for just that reason: It suggests that at some level even the biggest investors act sentimentally. The study was based on results from the 1970s through 2004, including the 2002 World Cup tournament, and Edmans says the pattern is holding up with this summer's World Cup, too.

Yale University finance professor Nicholas C. Barberis, who has reviewed the paper, said its findings stand up. ``The nice thing about the soccer paper is, we have a clean link between mood and prices," he said.

Other research also points to off-field consequences of big sports events. British researchers found in 2002 that hospital admissions for heart attacks rose 25 percent in the three days after England lost to Argentina in the 1998 World Cup. In America, riots have broken out in some cities after disappointing losses, and a 1989 study found higher homicide rates in US cities whose NFL football teams lost playoff games compared to cities with winning teams.

Soccer affects other off-field institutions. For example, Dutch researchers have shown that the stock prices of publicly traded European soccer clubs tend to go up when the teams win a lot, and fall when they lose -- regardless of revenues and profits.

This research falls in the field of behavioral economics, the study of how human nature can influence business transactions. Few doubt the World Cup's effect on merchandising deals and television rights. For instance, British brewer and pub operator Greene King PLC said its pubs are doing well this year because of World Cup-related marketing efforts. Other British retailers have blamed the tournament for lowering their sales by keeping customers home watching the games on television.

James Hughes, an analyst for London trading firm CMC Markets, said he doesn't buy that explanation, however. ``It seems like they're trying to put a lot of blame on something quite small," Hughes said.

Edmans' soccer paper has been accepted for publication by the American Finance Association's academic journal. His co authors are Diego Garcia of Dartmouth's Tuck business school and Oyvind Norli from the Norwegian School of Management.

Their findings don't include US markets where soccer isn't as popular as it is in Europe, Asia, and South America, the focus of the research. (Still, the Dow Jones industrial average did fall on the day after the United States was eliminated.)

For their study, the authors used economic models to predict how stock markets in countries like Brazil or Germany would behave on a given day compared with worldwide stock movements. They then compared how the markets actually behaved on the first full trading day after a country's team was eliminated from the World Cup and other competitions.

The study found a country's stock market on average performed half a percentage point worse on the day after a World Cup elimination. This ``drag" on a market's performance was smaller in less-important games.

In the current World Cup, even though some major indexes like Brazil's Bovespa rose just after their teams lost games and were eliminated, the explanation is that the increases would have been even more robust if the teams had survived.

The study did not find indexes rose after victories, perhaps because overconfident fans take victory for granted. ``If you ask most supporters, they always think they're going to win the World Cup," Edmans said.

Ross Kerber can be reached at

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