How the World Cup affects markets and traders.

Analysis of the previous World Cups shows that trading volume drops substantially in the country that has a team playing at the time. The average is 55% of trading in a particular country will drop off as traders presumably watch the game.

This global event celebrates soccer but exerts a noticeable influence on the economic dynamics of the participating countries. Lets take a short walk through history.

2006, 2010, 2014 & 2018 WORLD CUP: market reactions and analysis

The World Cup Effect is a widespread phenomenon that illustrates the influence of this sporting event on market trends. As the market is heavily influenced by emotions or psychology, hosting the world cup, scoring goals, or emerging as winning champions are striking occurrences expected to significantly impact the market and influence investors around the globe.

2006, 2010, 2014, and 2018 world cup events were hosted by Germany, South Africa, Brazil, and Russia, respectively. Based on market analysis, in the 20 days before the announcement of the world cup hosts, Germany‘s and South Africa’s major markets experienced a decline in Cumulative Average Abnormal Return (CAAR). In contrast, South African markets experienced a positive upward trend in the 20 days post-announcement, while Germany experienced a gain in over five days post-announcement.

Market analysis of positive changes in trends following host announcements indicates that investors treat this as good news. Following the announcement that Qatar will be hosting the 2022 world cup, its share prices rose to the highest it experienced in 2 years. The Qatar Exchange Index was reported to have increased over 7% at market opening, then closed at about 4% up.

The World Cup and its market-inclined trend

Experts argue that the major influence of world cup activities on the market is strongly tied to sentiments. The most striking observation about these market trends is that theyre as short-lived as the emotions behind them. Through the years, some of the commonly seen market trends include:

1. The trading holiday sequence

Research shows that trading volumes fall during matches, noticeable with trading activity in the host country when the team plays during trading hours. Traders tend to pay less attention to the market and respond poorly to relevant news when a game is ongoing.

A statistical illustration of trade volume during world cup events

During the 2010 world cup, an analysis of trading activity from markets of 15 countries by European Central Bank Scholars revealed a 45% drop in the number of trades and a 55% fall in trading volume, which dipped even further when a goal was scored. In Brazil, a 75% drop was recorded when the national team played, and in Chile, lets say trading was placed on a soft pause.

2. The champions take 75% of the market back home

According to a Goldman Sachs report, the winners experience a short-lived boost in the market over the next few months. This has stayed the same with every world cup except for Brazils win in 2002, where the market remained a home of woes.

Most experts link this phenomenon to traders sentiments, as a win is expected to increase trading volume and the demand. Most winning countries experience positive upward trends for a few months, which eventually fall back significantly quickly. Investors may want to take advantage of these possibilities.

A flow chart on market activities in the champions internal market

3. Runner-ups lose the market to a large extent

In the same way, the champions experience a boom in the global market. Losing countries are expected to experience equally short-lived downward plunges in the markets. According to Goldman‘s report, the last nine countries from the finals underperform in the market by 5.65 in the following months. This effect is short-lived and is attributed firmly to investors’ moods, especially in passionate countires.

Goldmans report on the market performance of world cup winners and runner-ups.