Examining the Impact of Football Tournaments on Equity Markets: An Analysis of Market Anomalies, Market Dynamics and Investor sentiment
This paper investigates whether two international football tournaments have an effect on the performance of four major stock markets during the event period. Some previous literature suggest that the NYSE index tended to fall during every World Cup between 1950 and 2007 due to negative investor sentiment associated with losing and being knocked out of the tournament. This enabled opportunistic investors to come up with trading strategies that exploited this “World cup anomaly” to earn excess returns. The aim is to see if investors still are able to exploit this market decline or if market actors have taken notice and arbitraged away this sentiment effect, by including more time periods in their original model. We find evidence that the Football loss effect is only prominent and exploitable on the NYSE and the SPX markets during the World Cup. Furthermore we find that the negative effect has become smaller and less significant on a statistical level. This implies that investors have started to exploit the football loss effect since it was discovered and therefore have reduced its returns, although the trading strategy still is profitable.