FIFA World Cup to Affect Market Trading

The World Cup kicked off yesterday, on Thursday (14/6) in Russia. This may be the stuff of dreams for soccer fans, but it will be less so for the stock market as fans stay glued to their TV screens. Investors should be warned that financial markets tend to act like any emotional soccer fan during the matches: quiet, nervy, and don’t like losing. In the last World Cup, Singapore's SGX trading value dropped by 29% in the two weeks after it began.

More than two-thirds of the 64 games in this tournament will be played during European and Latin American trading hours, which has shown to significantly change market behavior. Like the 2010 World Cup that situated in South Africa which has similarly timed matches to those in Russia, stock market trading volumes dropped an average of 55% when the country’s teams were playing, according to a study.

In soccer-mad Brazil and Argentina, the reduction was even more noticeable at 75% and 80%, respectively. It fell by 38% in Europe and 43% in the U.S., while big moments like goals cut activity further by 5%. “People are distracted so it is bound to happen again, that would be my take,” said Michael Ehrmann, the European Central Bank’s head of monetary policy research and co-author of the analysis.

Ehrmann plans to do more analysis on The 2018 FIFA World Cup tournament. With 35 games in market hours in the first two weeks alone, probably more than any World Cup in history, there will be no shortage of data to crunch. The original study, which looked at 15 major countries, found trading volumes dropped by a third on average even when a market’s own team wasn’t playing.

When they were involved, trading activity was already down 40% by the time the national anthems played and remained subdued for 45 minutes after the final whistle. German government bond trading almost halved during three of Germany’s 2006 and 2010 World Cup games. Stock indexes became 21% less correlated than normal with global price moves as well. News and information get processed differently during big games.

Ehrmann's latest World Cup research plans to show if markets still react if traders are watching a match. He expects to look at 15-20 games but preliminary findings from the 2010 data "suggest that relatively more salient information still gets priced, but relatively less salient, stock-specific information gets priced less," he said. He and his colleague highlight some very anomalies on their work.

Shares in computer chip firm STMicroelectronics, which trade in Italy and France, were priced lower in Milan as Italy got knocked out in 2010 and when France were eliminated. That builds on other studies that have shown how influential soccer results can be on markets. A 2007 study by three academics showed that going out of a World Cup can knock almost 50 basis points off a national index the next day.

In contrary to Ehrmann’s research, Goldman Sachs has proved that winning the World Cup sees a country's index outperform a global benchmark by 3.5% on average and for about a month. Since 1974, the winners have outperformed on all but one occasion, Goldman found on 2002 that when recession woes dampened the impact of Brazil's victory in Japan and South Korea.

Sources:

Investopedia

The Business Times

Economic Times

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