Monday, June 05, 2006

Stocks and the World Cup

In honor of the start of the World Cup on Friday, here's a fascinating article on the effect of sports (particularly World Cup losses) on financial markets (h/t Greg Mankiw), the abstract:

This paper investigates the stock market reaction to sudden changes in investor mood. Motivated by psychological evidence of a strong link between soccer outcomes and mood, we use international soccer results as our primary mood variable. We find a significant market decline after soccer losses. For example, a loss in the World Cup elimination stage leads to a next-day abnormal stock return of −49 basis points. This loss effect is stronger in smallstocks and in more important games, and is robust to methodological changes. We also document a loss effect after international cricket, rugby, and basketball games.

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