May 11, 2005

MISERY INDEX (via Darren Roulstone):

Soccer, Sentiment and Stocks (ALEX J. EDMANS, Massachusetts Institute of Technology (MIT), Sloan School of Management)


A number of recent studies have shown a link between mood and stock returns. However, critics have cast doubt on their a priori hypotheses, as it is unclear that the mood variable investigated affects the marginal investor strongly enough to
affect prices. We use a much stronger determinant of mood: national soccer results, which have been shown sometimes to mean the difference between life and death. In addition, the effect is more strongly correlated within a country than variables such
as weather.

Consistent with loss aversion and supporters' overoptimistic expectations, we find a statistically and economically significant stock market decline in England and the other big five European soccer nations after national soccer defeats. These are particularly pronounced after losses in championship rather than qualifying matches, with average next-day abnormal declines of 45 basis points, and stronger for more fanatical countries. There is no corresponding effect for victories.

It's a game that, uniquely, only has negative effects.

Posted by Orrin Judd at May 11, 2005 11:55 PM

Ah but the joy one gets from watching the beautiful game.

(Little more than 2 weeks now til USA vs. England at Soldier Field. Don't forget to set the tivo those of you with aversions to leaving your eastern time zone.)

Posted by: Jim in Chicago at May 12, 2005 12:35 AM

"It's a game that, uniquely, only has negative effects."
Oh, I don't know. It sounds like a good reason to sell short before big matches - if your team wins, you probably don't lose much, if anything, and if they lose, you make a nice profit.

Posted by: jd watson at May 12, 2005 1:12 AM

But then, I'm an Enterpriser.

Posted by: jd watson at May 12, 2005 5:07 AM

Jim: Thanks for the reminder. If I need a nap, I know what to turn on.

Posted by: Bob at May 12, 2005 9:13 AM

The results show one of the advantage of the U.S. not having a "national team" in any sport anyone carea about. If the Olympic basketball team loses, that's a pebble in the water of the country's collective mindset, so no one is ever going to get so dispondent they start selling off their stocks, and in league play, when one part of the country's losing in a sport, another part's winning -- well, except for those two years when the Blue Jays won the World Series, which coincided with Clinton defeating Bush 41 for president (hey, there may actually be a connection there...)

Posted by: John at May 12, 2005 10:20 AM


NY Yankee success or failure on the field has been shown to have a direct impact on the Dow.

As for the Olympic basketball team, since they are nothing but overpaid gangbangers, I root for Lithuania or Croatia or Serbia or Argentina or Italy against them.

Posted by: bart at May 12, 2005 10:37 AM