Effects of Football on Stock Markets: Return-Volatility Relationship

Abstract

This paper assesses the effects of domestic football teams’ performances against foreign rivals on stock market returns as well as on the return-volatility relationship. The data from Chile, Spain, Turkey and the United Kingdom support the propositions that the results of football teams in international cups affect (i) stock market returns and (ii) the risk-return relationship. Evidence from Spain and the UK (countries considered football powerhouses) suggest that losses are associated with lower returns and higher risk aversion (agents become less risk loving) but the evidence from Chile and Turkey (where football is the most important sport but the teams are not as successful) reveals that wins are associated with higher returns and lower risk aversion (agents become more risk loving).

Keywords: Behavioral finance, psychology, football and stock market return, risk-return relationship

JEL Classification: A12, C22, G12, L83