Human emotions can have an impact on financial markets. Examining intraday data
during a major sporting event, the authors illustrate how the outcome can affect
investors’ mood and thus influence share prices and next-day stock
Examining intraday stock price changes of a company cross-listed on both the Paris
and Milan stock exchanges, the authors consider how the elimination of both France
and Italy’s teams during the 2010 Fédération Internationale de
Football Association (FIFA) World Cup negatively affected the share price. They
evaluate stock price behavior both during the match and after its conclusion.
How Is This Research Useful to Practitioners?
Sentiment can influence financial markets. Prior literature has considered how such
factors as seasonal affective disorder, the quantity of morning sunshine, and
daylight saving time can influence an investor’s mood. The effect of major
sporting event outcomes on stock prices has also been considered, and the results
are more pronounced for defeats than for victories.
The authors show how the elimination of France and Italy’s teams during the
2010 World Cup altered the mood of investors and quickly depressed stock prices in
real time during the matches as both teams approached defeat. They examine
high-frequency intraday trading data and consider a cross-listed company that trades
on both French and Italian stock exchanges, making the identification of pricing
anomalies easier because both exchanges price in euros. Finally, the authors
evaluate the trajectory of stock prices during two high-profile matches in which
France and Italy’s teams competed in the final round of the group stage in
the 2010 World Cup.
Sporting events can alter investor moods and have an almost immediate effect on stock
prices. Stock prices in the market of the country whose team is losing can be
significantly lower than prices in the market of the country whose team is winning.
The authors observe that the likelihood of underpricing increased as the game
progressed and the team’s defeat appeared more likely. In the case of France,
which lost to South Africa, the negative sentiment on the Paris stock exchange
lingered a bit after the conclusion of the match. The authors control for
soccer-related mood effects and investor inattention to ensure that exogenous
factors do not cloud the outcome of their hypothesis.
The authors’ research explores an interesting niche of behavioral finance that
could be of interest to students of the topic as well as traders, market
strategists, analysts, and portfolio managers.
How Did the Authors Conduct This Research?
The authors examine mood-related stock price changes of STMicroelectronics (STM), one
of the world’s largest semiconductor companies, which is cross-listed on both
the Paris and Milan stock exchanges, during two matches at the 2010 FIFA World Cup.
These were the last matches in the group stage. France competed against South Africa
on 22 June 2010, and Italy played Slovakia on 24 June 2010.
The authors observe minute-by-minute stock price data from 3 May 2010 to 30 July
2010. Both the Paris and Milan stock exchanges are sufficiently deep and liquid
markets, and the fact that the company was cross-listed on both exchanges during the
2010 World Cup allowed for easy identification of any pricing anomalies between the
two markets. Because both exchanges trade in the same currency, the authors did not
need to control for exchange rate fluctuations. Price deviations between Paris and
Milan should not exist because they would create arbitrage opportunities. Positive
values would represent overpricing and negative values underpricing on both
exchanges. They examine possible price differences during the period of the World
Cup from 11 June 2010 to 11 July 2010 along with a benchmark sample six weeks before
and three weeks after and find only a small number of outliers.
To study the effects of investor mood on stock prices, the authors use detailed
graphs. Time plots illustrate price deviations as the matches progress. Histograms
allow the authors to examine the distribution of pricing deviations during the
games. They also use probit regressions to quantify the possibility that
investors’ moods can affect stock prices. As the games advance, the authors
observe price declines on both exchanges for STM, although the declines are of
differing magnitude. Their observation supports the hypothesis that a mood effect
causes stock price declines when the respective country’s team is losing
during a game.
The authors had a unique set of circumstances in the form of two matches that
occurred at the 2010 FIFA World Cup during trading hours and a cross-listed company
on the deep and liquid stock exchanges of two countries that use the same currency.
As the likelihood of elimination increased for both France and Italy, the price of
the jointly listed company declined on their respective exchanges, although by
differing orders of magnitude.
It would be interesting to extend the authors’ model to a larger sample of
cross-listed firms over a longer period of matches. Finally, researching how mood
affects price changes by observing the more granular tick-by-tick rather than
minute-by-minute changes may provide greater precision in observing the effect of
investors’ moods on stock prices during sporting events and test further the
bounds of market efficiency.