Stories | June 7, 2012

Did you know … big sports matches can have big effects on share markets?

Nothing brings national life to a stop like a big match in a football tournament. Volumes traded in a country’s share market dropped 55% on average when its team was playing a World Cup 2010 match.

Economists Michael Ehrmann and David-Jan Jensen have found that even stock market traders take it easy during World Cups. In Chile, to cite an extreme case, the volume of trades per minute fell 99% while the Chilean team was playing in the 2010 World Cup.

For a big match, half the nation or more parks itself in front of the television set. Then at half-time everyone gets up and makes tea or coffee. The largest power surge in British history was recorded just after the England-Germany semifinal of the World Cup 1990, when the equivalent of a million kettles were put on at once. The final whistle and half-time are also moments when millions flush their toilets and water can run low nationwide.

Twiddling your thumbs?
If you are not interested in football, you might think a time like this is an opportunity. While everyone else is distracted, you can go shopping and finally get the full attention of the shop assistants. It might also sound like the perfect moment to go and buy stocks.

However, markets don’t work that way. They function best at busy times. When there are lots of sellers and buyers – in short, lots of competition – it’s easiest to find a good price. University of Chicago economist John List wrote in his paper The Economics of Open Air Markets that sellers in a market tended to set agreed prices among each other beforehand, but were most likely to break these agreements and offer better prices on busy days.

In other words, it’s best to trade when other people are trading too. Meanwhile you might as well just watch the match with everyone else.

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Simon Kuper

Sports and economics author