When Poldi scores, the stock market goes cold

When the national soccer teams of 32 countries play for the World Cup starting in mid-June, there will again be talk of the "feel-good factor" and its impact on stock market prices. According to some studies from the Anglo-Saxon world, a victory by the English team will cause London stock prices to rise, a victory by the DFB team will cause the Dax to rise; if the German team loses, the Frankfurt stock prices will plummet. In view of the seas of flags and motorcades after a World Cup victory, it is easy to imagine euphoric and therefore risk-averse investors. The only thing is: "The assumption that there is a connection between the results of a national team and stock market prices is wrong," clarifies Prof. Dr. Christian Klein, Head of the Department of Corporate Finance at the University of Kassel. "Studies that establish a connection here actually show something completely different."

Together with his colleague Dr. Bernhard Zwergel, he already reviewed a study from England several years ago, which is cited again and again, especially before world and European championships, and found fundamental errors. "For example, knockout games that were tied after 90 minutes were counted as draws. For the feel-good factor, however, the final result after extra time or penalty shootouts is likely to be much more decisive," says Klein. The fact that stock exchanges are closed on public holidays was also not taken into account, and the development of share prices on the day after a soccer match was distorted accordingly - to name just a few errors.

In 2009, Klein and Zwergel presented a comprehensive study of their own, which included World Cup, European Championship and qualification matches from 1990 to 2006, namely from Belgium, the Czech Republic, Denmark, England, France, Germany, Greece, Italy, Portugal, Sweden, Switzerland, Spain, the Netherlands and Turkey. Using several statistical models, they tested for a correlation between the performance of a soccer team and the stock market price. Result: there is none. "Even particularly surprising results, such as the 1-2 loss to the Czech Republic that knocked the DFB team out of the 2004 European Championship tournament, have no effect on share prices," says Klein. "Why would they? A large part of the trading volume on the major stock exchanges now comes from foreign investors. There may be psychological factors that influence the stock markets: for example, when there is nice weather for a long time. But soccer results are not one of them," says Klein.

However, a cross-check by the two economists yielded telling results: "International matches produce a large data set that can be analyzed using a variety of statistical methods. When we tried to produce certain desired statements, we always found a way to do so," Klein said. "That brings into focus a problem with many such studies: it's always easier to get attention for spectacular statements than for the result that there is no result."

Contact:

Prof. Dr. Christian Klein
University of Kassel
Department of Corporate Finance
Tel: + 49 561 804-7565
Email: klein[at]uni-kassel[dot]de

Studies:
Klein, C., Zwergel, B. and Henning, F. J. (2008): Reconsidering the impact of national soccer results on the FTSE 100, Applied Economics, 41, 3287-94.
http://www.tandfonline.com/doi/full/10.1080/00036840802112471

Klein, C., Zwergel, B. and Heiden, S. (2009): On the existence of sports sentiment: the relation between football match results and stock index returns in Europe, Review of Managerial Science, 3: 191 - 208.
http://link.springer.com/article/10.1007/s11846-009-0031-8#page-1