Timeless Anomalies

Researchers studying the effect of sporting events on stock returns found that losses in the FIFA World Cup lead to significant next-day market decline on the loser’s local stock market (Edmans, García, & Norli, 2007). A few years after the publication of the original effect, research was published on a simple strategy to exploit this effect using an aggregate effect on the U.S. stock market (Kaplanski & Levy, 2010a). The fact that a profitable strategy had been conceived based on this World Cup effect hinted towards market inefficiency. Using the same methodologies as these researches, the effect was verified. Adding more recent data, the effect seemed to have diminished over time. When examining the effect in subsamples it became clear that the effect was influenced heavily by outliers, namely the 1974 and 2002 World Cup. The diminishing over time is thus explainable by the reduced influence of these outliers. Removing these outliers led to statistical insignificance for the effect (p-values .166 for loss games, .357 for event effect days and .742 for the entire period). Using actual market returns it was established that the effect had no economic significance either (the conceived strategy underperformed the market by 1,22%).