29 Pages Posted: 27 Mar 2008 Last revised: 28 Dec 2010
Date Written: May 1, 2008
In a recently published paper, Edmans, Garc¿a, 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.
Keywords: exploitable predictable effect, mood event effect, market sentiment, behavioral finance, abnormal returns
JEL Classification: A12, A14, F21, G14
Suggested Citation: Suggested Citation
Kaplanski, Guy and Levy, Haim, Exploitable Predictable Irrationality: The FIFA World Cup Effect on the U.S. Stock Market (May 1, 2008). Journal of Financial and Quantitative Analysis (JFQA), Vol. 45, No. 2, pp. 535-553, April 2010. Available at SSRN: https://ssrn.com/abstract=1081286