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Does the World Cup predict stock markets? Goldman Sachs analysis says equities receive boost in country of tournament winners Seminar Brazil are the tournament's likely winners, Goldman said Photo: GETTY IMAGES By James Titcomb 5:24PM BST 28 May 2014 Stock markets are notoriously difficult to predict, but this summer's World Cup will be an unusually accurate barometer, according to Goldman Sachs. The winning team in July's final in Rio de Janeiro can expect its country's stock market to perform better than global equities by 3.5pc in the month following the tournament, the bank said, following an analysis of the last four decades of World Cups. Every winner since 1974 has outperformed the wider market, the researchers said, with the exception of the 2002 tournament when Brazil's victory was overshadowed by a deep recession. Stock markets for the final's runner-up, meanwhile, tend to fall in comparison to global peers. On both, the effect is only temporary, with markets returning to normality after a few months. Exhibit 1: A boost for the winner Relative performance of World Cup winners one year before/after championship match 110 108 Day 0 = Monday after final match 106 104 Average rel. perf. vs. MSCI AC World of World Cup winners -260-220-180 -140-100 60 -20 20 60 100 140 180 220 260 No. of trading days before/after Note: Excluding Argentina in 1978 and 1986. Source: Datastream, Goldman Sachs Global Investment Research. Goldman's analysis suggests buying Brazilian shares will pay off, with the bank making the host nation the tournament overwhelming favourites, with a probability of 48.5pc. Betting on the FTSE 100 rising following the tournament isn't recommended. England is given only a 1.4pc likelihood of success in Brazil - the tournament's seventh favourites. A highly-unlikely success for England this summer could, however, be bad news for the economy. Having compared the team's FIFA ranking against economic growth, Goldman finds that the UK economy tends to do better when England's football team is doing worse. Football drives relative economic performance (sort of) - Fifa ranking (LHS) UK-Global GDP growth (RHS) 94 95 96 97 98 99 00 01 02 03 04 05 07 08 09 10 11 12 13 14 Source: ONS, FIFA, Goldman Sachs Global Investment Research. The bank, which has predicted growth of 3pc for the UK in 2014, notes that if England does do well in the World Cup, we may have to adjust our economic forecasts downwards. Copyright of Telegraph Media Group Limited 2020 Sports Sentiment and Stock Returns Alex Edmans, Diego Garcia, and Oyvind Norli Journal of Finance August 2007 Abstract This paper investigates the stock market reaction to sudden changes in investor mood. Motivated by psychological evidence of a strong link between soccer outcomes and mood, we use international soccer results as our primary mood variable. We find a significant market decline after soccer losses. For example, a loss in the World Cup elimination stage leads to a next-day abnormal stock return of -49 basis points. This loss effect is stronger in small stocks and in more important games, and is robust to methodological changes. We also document a loss effect after international cricket, rugby, and basketball games