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 semi-final match between Brazil and Germany.
National Journal
Matt Vasilogambros
Add to Briefcase
Matt Vasilogambros
July 11, 2014, 6:06 a.m.

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.

What We're Following See More »
Report: U.S. Ill-Equipped to Detect Dirty Bomb
10 hours ago

A DHS report "found gaping holes in domestic nuclear detection and defense capabilities and massive failures during covert testing." A team put in place to assess our readiness capabilities found significant issues in detecting dangerous radioactive and nuclear materials, failing to do so in 30 percent of covert tests conducted over the course of the year. In far too many cases, the person operating the detection device had no idea how to use it. And when the operator did get a hit, he or she relayed sensitive information over unsecured open radio channels."

White House to Give McMaster Carte Blanche
13 hours ago
Russia Compiling Dossier on Trump’s Mind
15 hours ago

Retired Russian diplomats and members of Vladimir Putin's staff are compiling a dossier "on Donald Trump's psychological makeup" for the Russian leader. "Among its preliminary conclusions is that the new American leader is a risk-taker who can be naïve, according to a senior Kremlin adviser."

Pruitt Confirmed As EPA Head
4 days ago
Harward Turns Down NSC Job
5 days ago

"Ret. Vice Adm. Bob Harward turned down President Donald Trump's offer to be national security adviser Thursday, depriving the administration of a top candidate for a critical foreign policy post days after Trump fired Michael Flynn." Among the potential reasons: his family, his lack of assurances that he could build his own team, and that "the White House seems so chaotic."


Welcome to National Journal!

You are currently accessing National Journal from IP access. Please login to access this feature. If you have any questions, please contact your Dedicated Advisor.