Last week I discussed a working paper that purported to contain evidence that stock returns declined during the World Cup. I expressed some doubts about the results. Today, I ran across a link to a paper that is forthcoming in the Journal of Finance (for the non-academics in the audience, this is the top general interest journal in finance) that contains similar evidence. The paper examines the relationship between short term (returns on the day following the match or game) abnormal returns on broad stock market indicators in Argentina, Brazil, England, France, Germany, Italy, and Spain. The results indicate a decline of 0.49 basis points on the day following a loss in a World Cup elimination game, and similar declines following elimination losses in other international competitions and group games in the World Cup. The explanation for the result is that losses affect investor mood.
The results in this paper are stronger than those in the working paper I discussed last week. Short term abnormal returns are a more appropriate place to look for this sort of evidence than average return over a month, and the econometrics in this paper are solid. It also contributes to a growing literature that documents the relationship between sport outcomes and stock markets. Another interpretation for this results is that they reflect the sort of productivity losses Jimmy commented on yesterday.