United kingdom Daily news: Euro 2012 'mood trap': Why do markets underperform after football defeats?

Jumat, 06 Juli 2012

Euro 2012 'mood trap': Why do markets underperform after football defeats?

Euro 2012 'mood trap': Why do markets underperform after football defeats?

By Tanya Jefferies

PUBLISHED: 10:31 EST, 6 July 2012 | UPDATED: 11:28 EST, 6 July 2012

What were your emotions after England crashed out of Euro 2012 - were you disappointed, angry, frustrated? And what financial decisions did you make the next day?

If you ordered in comfort food like pizza instead of cooked, splashed out on more pints down the pub than usual to cheer yourself up, or went and sold a bunch of shares for no good reason, you fell into what behavioural finance experts call a 'mood trap.'

This is why studies show stock markets underperform more often than not the day after their country loses a knock-out football game in a major championship.

National pessimism: London stock market bucked the trend by outperforming after England's defeat by Italy

The eZonomics behavioural investing team at Dutch bank ING ran the numbers for Euro 2012 and discovered they backed findings from football World Cups stretching back to 1973.

Senior economist Ian Bright and his staff analysed share market returns after the 26 Euro 2012 matches that had a winner and loser (draws were excluded). They then looked at the performance of the regional index to which a market was closest such as the MSCI Europe, MSCI Emerging Markets or MSCI Frontier.

Bright found more than half or 54 per cent of the share markets in losing countries fell by more than their related indices next day, with results almost identical for developed and emerging countries competing in Euro 2012. Read full match by match analysis below.

Although this was not a runaway result, it did support an earlier and much larger survey published in 2007 - 'Sports Sentiment and Stock Returns' by a different group of economists - which examined what happened to markets after 2,000 matches in football and other sports over more than 30 years.

Ian Bright: 'You wouldn't want to set up a trading strategy based on this'

The ING Euro 2012 study revealed a textbook underperformance by Poland's stock market after the tournament co-host was knocked out by the Czech Republic. It fell 0.5 per cent on June 18 compared with a 0.96 per cent rise in the MSCI Emerging Markets index.

But interestingly, the result after England's defeat bucked the trend - the stock market fell 1.15 per cent on June 25, but this was less than the 2.05 per cent drop on the MSCI Europe.

Was that because fans had such low expectations? Bright tactfully declines to speculate whether mass pessimism over England's fortunes in Euro 2012 meant that its loss to Italy failed to prompt much surprise or disappointment.

But he points out that the earlier 'Sports Sentiment' study took account of fan expectations of success or failure before losing a match, and found that markets usually fall after a defeat regardless of this factor.

The ING team didn't look at what happens to stock market s after national teams win important matches - although Bright notes that his Spanish colleagues were 'very pleased' by their eventual championship victory.

This omission was because the more exhaustive 'Sports Sentiment' report had already run the figures and found that match wins have absolutely no impact on subsequent share performance.

How does knowing about the football 'mood trap' help investors?

'You wouldn't want to set up a trading strategy based on this.' says Bright. 'You would be extremely foolish to do so. It's rather an illustration of the psychological effects on your mood. It can affect the way you manange money.'

He says the lesson to take away from his study is to avoid the danger of making investment decisions when you are feeling angry or disappointed.

'If it's a decision that doesn't have to be made today, put it on the side for another day,' says Bright. 'Avoiding losses is as important and in many cases more import ant than making good decisions.'

And he adds: 'Actively being inactive is an active decision.'