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For Germany and Argentina, a World Cup Loss Could Mean a Stock-Market Dive For Germany and Argentina, a World Cup Loss Could Mean a Stock-Market ...

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For Germany and Argentina, a World Cup Loss Could Mean a Stock-Market Dive

Losing a major soccer game hurts the self-esteem of a nation so much that it affects investor moods.


Brazil fans watch the World Cup semifinal match with Germany.(Mario Tama/Getty Images)

As if there wasn't already enough pressure on the Argentine and German national teams in the World Cup final on Sunday, here's more: A loss could hurt their entire economies.

That's the latest warning from Alex Edmans, a professor at the London Business School and the Wharton School of the University of Pennsylvania, on Friday. The prediction comes from his 2007 study in the Journal of Finance that found a link between World Cup losses and sharp declines in the losing country's stock market the following day. Edmans's study used 1,100 soccer matches from 1973 to 2004 from the World Cup, the European Championship, Copa America, and the Asian Cup.


For many countries around the world, soccer is a national interest, tied to the self-esteem of its citizens. Soccer affects people's moods, and a win or a loss means that people feel better or worse about themselves and life in general. For investors, their moods have been shattered so much by the soccer game that the markets in turn go down.

According to Edmans's study, elimination from a major international match saw a 38-point decrease in the losing country's stock market. A loss in the World Cup, however, is much more pronounced, with a 49-point decrease the day after a loss. And that's just an average of all elimination games (Round of 16, Quarterfinals, Semifinals, and Final). A loss in the World Cup final would mean a much higher stock-market loss.

"It is hard to imagine other regular events that produce such substantial and correlated mood swings in a large proportion of a country's population," the study notes.


Edmans's theory is already playing out in this World Cup. After losing big to the Netherlands in the opening game, Spain's stock market declined by 1 percent, while the world market increased by 0.1 percent. After a major loss to Costa Rica this tournament, Italy saw its market dip by 1.5 percent as the world market remained unchanged. The Netherlands' stock market fell 1 percent after its loss to Argentina on Wednesday. Overall, 25 of the 37 defeats this year have preceded declines in the losing countries' stock markets, Edmans notes.

So if losses cause economies to temporarily tumble, wins should result in big, immediate gains, right? Not quite. After a nation wins a World Cup game, its stock market increases by just 9 points on average. That's because people are more swayed by losses than gains, according to the economic theory of loss aversion. Basically, people are more affected by losing a dollar than winning a dollar. The same can be said for World Cup games: People would rather not lose than win.

In many countries, soccer is a way of life, a "religion" to some. When it comes to match outcomes, it's also apparently an economic indicator.

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