MASTER THESIS Football matches and stock returns: A comparison between Europe and Latin America in market reactions after football matches of national teams “Some people think football is a matter of life and death. I don't like that attitude. I can assure them it is much more serious than that.” – Bill Shankly – AUTHOR: JOOST VAN DER WIJDEN ANR: 452627 SNR: 2018573 Supervisor: Dr. R.P.G. Frehen Second reader: Dr. O.G. De Jonghe Date: 10 July 2019 J.M. van der Wijden (2019) Abstract This study investigates whether the match results of national football teams have an effect on domestic stock indices. Since football is an important part of many people’s lives, match results can be seen as an important mood changer that may have an impact on stock markets. This fits in the field of behavioral finance literature which links mood to trading behavior. A newly introduced aspect is that I study the difference between Latin American countries and European countries. Because the public view is that football plays a more important part in the lives of Latin Americans than it does in the lives of Europeans, and since Latin Americans are considered to be more emotional than Europeans, I have the expectation that match results of Latin American national football teams on main tournaments will have a bigger effect on domestic stock indices than match results of European national football teams on main tournaments. To study these effects I perform an event study. In total, this study investigates match results of ten European and four Latin American countries on main tournaments between 1996 and 2018. I found no statistically significant results that are in line with the main expectations. After won matches the average abnormal return was -0.0033%, and after lost matches, the average abnormal return was -0.0450%. Both are statistically insignificant. Also, the second expectation that match results of Latin American countries have more impact on the domestic stock indices than match results of European countries is not supported by the results. The lack of evidence for the expectations may be caused by the fact that sports might not affect investors enough to have an impact on their trading behaviour. Another possible explanation is that a big proportion of the stocks of the firms that are on the studied stock indices are held by foreign investors who are not or less affected by match results. Page 1 of 72 J.M. van der Wijden (2019) Contents 1. Introduction and motivation ...................................................................................................................... 4 1.1 Purpose of the study ............................................................................................................................ 4 1.2 Outline................................................................................................................................................. 4 1.3 Football ............................................................................................................................................... 5 1.3.1 FIFA World Cup .......................................................................................................................... 6 1.3.2 UEFA European Championship ................................................................................................... 7 1.3.3 CONMEBOL Copa América ....................................................................................................... 7 2. Literature review ....................................................................................................................................... 8 2.1 Investor sentiment ............................................................................................................................... 8 2.2 Sport sentiment ................................................................................................................................. 10 2.2.1 Stock indices .............................................................................................................................. 10 2.2.2 Listed football clubs ................................................................................................................... 17 2.2.3 Intimately involved companies .................................................................................................. 19 2.2.4 Other sports ................................................................................................................................ 20 2.2.5 Comparison with this study........................................................................................................ 21 2.3 Emotional levels ................................................................................................................................ 22 2.3.1 Latin Americans vs. Europeans ................................................................................................. 23 3. Theoretical Framework ........................................................................................................................... 26 3.1 Three forms of market efficiency ...................................................................................................... 26 3.2 Criticism of the Efficient Market Hypothesis ................................................................................... 26 4. Hypotheses .............................................................................................................................................. 29 5. Data ......................................................................................................................................................... 30 5.1 Match results ..................................................................................................................................... 30 5.2 Historical stock index data ................................................................................................................ 30 5.3 Irrelevant matches ............................................................................................................................. 31 5.4 Draw but won and draw but lost ....................................................................................................... 31 Page 2 of 72 J.M. van der Wijden (2019) 5.5 No day returns ................................................................................................................................... 31 5.6 Benchmark ........................................................................................................................................ 32 6. Methodology ........................................................................................................................................... 33 6.1 Conducting the Event Study ............................................................................................................. 34 6.2 Models for the abnormal returns ....................................................................................................... 35 6.3 Timing ............................................................................................................................................... 36 6.4 Analyzing the events ......................................................................................................................... 37 6.4.1 Example Brazil – Holland, July 2nd 2010 ................................................................................... 39 7. Results ..................................................................................................................................................... 41 7.1 Descriptive statistics ......................................................................................................................... 41 7.2 Regression analysis ........................................................................................................................... 45 7.2.1 First hypothesis .......................................................................................................................... 45 7.2.2 Second hypothesis ...................................................................................................................... 46 7.2.3 Third hypothesis ......................................................................................................................... 47 7.2.4 Fourth hypothesis ....................................................................................................................... 48 7.2.5 Individual countries.................................................................................................................... 49 7.2.6 Elo Ratings ................................................................................................................................. 50 8. Conclusion .............................................................................................................................................. 54 Bibliography ............................................................................................................................................... 57 Appendices .................................................................................................................................................. 62 Appendix A ............................................................................................................................................. 62 Appendix B ............................................................................................................................................