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The Impact of FIFA World Cup on Sponsoring Companies and the Host Country Stock Market Index

Written by A. Alsaadi, S. Banerjee

Paper category

Master Thesis

Subject

Sport and Nutrition

Year

2020

Abstract

Thesis: Insights into investor behavior and subsequent investment decisions that affect the stock market From the perspective of investor behavior and the outcome of favorite national sports teams, past studies have shown that the results of the FIFA World Cup have significantly affected investors’ mood. Investors feel positive when the country wins, and feel frustrated when the country loses. Hirt et al. (Edmanset22) 2007) showed that there is a strong correlation between FIFA game results and excess stock returns. They discovered the asymmetric effect that led to losses, which had a far-reaching inhibitory effect on the local stock markets of failed countries. They want to test the hypothesis whether losses will inhibit stock market returns. After conducting an investigation to support their hypothesis, they found that it was the capital gains and overall return range that actually suffered the most losses, ultimately affecting the volume of securities trading and serving as an indicator of investor sentiment. Their labeling of capital gains and returns as investment utility components ultimately depends on investors’ confidence in their country’s stock market. Therefore, the reference point here will be investors' pre-match expectations of their national team's performance. Here, it can be said that investors not only invest their own funds in the securities market, but also psychologically invest themselves in the results they want, and ultimately make biased positive predictions. Eventually, when things go bad for them, they often lose all hope and start to divest, leading to an influential stock price drop. An example of this situation is Nike's stock market situation during the 17th World Cup. Nike is the sports sponsorship company that won the first game in Brazil. Nike’s excess return on the opening price of the first trading day soared 1.3%, but the country fell 5% after losing the second game. This shows that investor sports sentiment is realized very quickly. When frustrated with the results, investors will be extra cautious when adjusting their investments to avoid losing money in the stock market. 2.3 Reasons for the influence of FIFA on global stock indexes and comparison with other sports. Previous studies have shown that losing the World Cup significantly reduces stock market returns and trading volume, while victory is the opposite. Therefore, it is appropriate to analyze the reasons for the changes in the stock market. In order to look at these reasons, we may have to expand our view to include other sports and find out whether they can be used as possible indicators of stock market changes. The efficient market hypothesis states that stocks always contain new information and its participants act in a rational way. 2.4 Consider in detail the reactions and changes of the stock market at various levels. An additional feature of this paper, that is, the paper on football matches and stock returns published by Wijden, JV (2019) is that it also studied the impact of the results of the national football team during the FIFA World Cup on the stock index, and also considered The impact of the game results of listed football clubs on their stock prices, and the impact of the game results on the stock prices of closely related companies. Finally, the article introduces the acceptance of sports sentiment in the Latin American and European stock markets and the subsequent differences in investment decisions. Dohmen, Falk, Huffman, and Sunde (2006) asked a representative sample of the German population about their personal economic situation, the current economic situation in their country, and their expectations for changes in these two situations in one year. They found that after the unexpectedly outstanding performance of the German football team, respondents had a more positive view of their economic perceptions and expectations. It turns out that the results are convincing enough for the entire German population and economy. This article seems to be very interested in whether this optimistic quality will affect the trading behavior of domestic stock market investors. The article divides the impact of competition results into three different levels. The first level is the impact of FIFA match results on domestic stock indexes including national teams, and the second level is the impact of FIFA match results on football clubs listed on the stock exchange (Juventus, Italy, Arsenal, England). Etc.), and finally, at the third level, the impact of FIFA match results on the stock prices of sponsoring companies associated with these football clubs. Ashton Gerrard and Hudson (2003) were the first to study this effect. They studied the impact of the England national football team's performance from January 6, 1984 to July 3, 2002, on the British FTSE 100 Index through a binomial test, and found a statistically significant relationship. Bernhard Zwergel and Christian Klein (2009) further strengthened this research. They re-ran the binomial test to determine whether the return on the trading day after the FIFA match of the English national football team is different from the unconditional average return on the normal trading day. Although using the same data, the two studies have produced different results. The two different conclusions may be due to the different perspectives of the two studies. For example, first of all, Ashton did not consider the holiday effect. The holiday effect refers to a day when no transactions occur. Read Less