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Exploitable Predictable Irrationality: The FIFA World Cup Effect on the U.S. Stock Market

Published online by Cambridge University Press:  19 February 2010

Guy Kaplanski  and
Haim Levy
Guy Kaplanski
Affiliation:
School of Business Administration, Bar-Ilan University, Ramat Gan 52900, Israel. [email protected]
Haim Levy
Affiliation:
School of Business Administration, Hebrew University of Jerusalem, Mt. Scopus, Jerusalem 91905, Israel, and the Academic Center of Law and Business. [email protected]
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Abstract

In a recently published paper, Edmans, García, and Norli (2007) reveal a strong association between results of soccer games and local stock returns. Inspired by their work, we propose a novel approach to exploit this effect on the aggregate international level with the following three unique features: i) The aggregate effect does not depend on the games’ results; hence, the effect is an exploitable predictable effect. ii) The aggregate effect is based on many games; hence, it is very large and highly significant. We find that the average return on the U.S. market over the World Cup’s effect period is – 2.58%, compared to +1.21% for all-days average returns over the same period length. iii) Exploiting the aggregate effect is involved with trading in a single index for a relatively long period.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 45 , Issue 2 , April 2010 , pp. 535 - 553
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2010

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