The 2018 Soccer World Cup mascot outside the Fisht Olympic Stadium in Sochi, Russia. Picture: REUTERS
The 2018 Soccer World Cup mascot outside the Fisht Olympic Stadium in Sochi, Russia. Picture: REUTERS

London — The Soccer World Cup kicks off in Russia on Thursday and investors should be warned that financial markets tend to act like any emotional soccer fan during the matches — they go quiet and nervy and don’t like losing.

More than two-thirds (43) of the 64 games in this year’s tournament will be played during European or Latin American trading hours which has been shown to significantly change market behaviour.

During the 2010 World Cup in SA — the last to have 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 pronounced, at 75% and 80% respectively. It fell 38% in Europe and 43% in the US, while big moments like goals cut activity by a further 5%.

"People are distracted so it is bound to happen again, that would be my take," says 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 this tournament and, with 35 games during 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 pre-match national anthems played, and remained subdued for 45 minutes after the final whistle.

Fifa fever: A woman runs next to graffiti depicting Brazilian player Neymar near Barra da Tijuca in Rio de Janeiro. Picture: REUTERS
Fifa fever: A woman runs next to graffiti depicting Brazilian player Neymar near Barra da Tijuca in Rio de Janeiro. Picture: REUTERS

Bond markets were also affected. German government bond trading almost halved during three of Germany’s 2006 and 2010 World Cup games.

Stock indices became 21% less correlated than normal with global price moves as well, underscoring just how differently news and information gets processed during big games.

Ehrmann’s latest Soccer World Cup research plans to show what kind of things markets do still react to even 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.

Other work he and his colleague have already done highlights some very acute anomalies too.

Shares in computer chip firm STMicroelectronics, for example, which trade in both Italy and France, were priced lower in Milan as Italy got knocked out in 2010 and vice versa 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 Soccer World Cup can knock almost 50 basis points off a national index the next day, which would be worth more than £10bn for a large global market like London.

In contrast, Goldman Sachs has proved that winning the Soccer 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 — the exception being 2002, when a recession damped the impact of Brazil’s victory in Japan and South Korea.

Reuters