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Mood trap

11 July 2018

Even football matches can move markets in the short term, but investors need to ensure they don’t take their eye off the ball.

As the World Cup draws to a close, investors may want to keep one eye on the stock market performance of the winning nation. In the past, the World Cup has often provided a short-term shot in the arm to a stock market, as a feelgood factor sweeps the nation. On the other hand, when a country is knocked out, its stock indices can suffer a ‘hangover’ effect.

This trend is evidenced in research produced by Goldman Sachs, which showed that “[after winning the World Cup final] on average the victor outperforms the global market by 3.5% in the first month’”. However, investors should be wary of rushing in, as riding the wave of market sentiment often leads to longer-term disappointment: "the winning nation doesn’t tend to hold on to its gains and, on average, sees its stock market underperform by around 4% over the year following the final".1

It would be simplistic to attribute these market movements solely to the beautiful game, but the findings do demonstrate the potential for unpredictable events to shift market sentiment. For many, football is such a huge part of the national psyche that the success or failure of the national team can contribute to behavioural biases, even among investors.

The impact of footballing failure on stock markets was arguably borne out on the German DAX index in June, as the defending champions exited at the group stage; the market fell by more than 1% the day after their exit on 27 June - crucially, however, the dip was short-lived.

Source: Bloomberg


The FTSE 250, which is much more closely linked to the UK economy than the FTSE 100, suffered its own fall – of more than 1% – when England lost 4-1 to long-time rivals Germany in 2010, causing their exit from the World Cup.

Such moments of sporting contagion on markets highlight the threat of so-called ‘loss-aversion bias’, which is characterised by a tendency to avoid risk simply because it lessens the potential for poor outcomes. Investors are keen to avoid choices that may lead to losses and therefore look to sell because of nervousness about the outlook for their investments.

Indeed, German companies were also impacted when the team was knocked out of the tournament. Adidas hit a three-month market low in the aftermath - the exit of other major nations it sponsors, such as Spain and Argentina, didn't help either. Although the company’s trajectory looks positive, these share price moves show once again the capricious nature of market sentiment.

Confirmation bias

In contrast, as ‘It’s coming home’ becomes the soundtrack to the English summer, investors should also be wary of confirmation bias. and the belief that the outcome of the World Cup is a foregone conclusion. Investors can likewise be drawn into a ‘mood trap’ whereby they selectively filter information, giving more attention to data that supports their bullish (or bearish) outlook on the market.

These behavioural quirks are not new. Daniel Kahnemann and Amos Tversky explored their impact thirty years ago in a collection of studies called ‘Risk and Rationality’. However, it is very difficult to overcome human nature. For some fund managers, the inherent irrationalities of human behaviour can help trigger opportunities, as they are able to exploit short-term mispricing of stocks caused by investor overreaction.

Ultimately, when one-off events cause short-term falls or gains, investors should not allow them to have a bearing on longer-term investment decisions, World Cup performance certainly isn't always a reflection of the quality of the market; Brazil won the World Cup in 2002 despite the economy being in the grip of a recession.

As ever, time in the market rather than timing the market should be a fundamental tenet of an investment strategy. With the country dreaming of World Cup success in Moscow on Sunday, it is worth bearing in mind the words of Dutch legend Johan Cruyff, who said "football is a game of mistakes, whoever makes the fewest mistakes wins". It is a lesson investors may want to remember – especially the day after the final.


The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

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