It's coming home. Football that is. Tonight England face Croatia for a place in the World Cup Final. If England lose tonight what will happen the stock market tomorrow? A paper by Alex Edmans and co-authors find that markets decline after football losses. For example, they find that a loss in the World Cup elimination stage leads to a next-day abnormal stock return of -49 basis points. Why? The idea is simple. Stock prices are driven by things like mood and sentiment. A loss by a national football team has a negative impact on national mood and affects the trades made by investors the next day. England lost on penalties to Germany on 4th July 1990. The FT30 index fell by 1.2% on 5th July. I feel a new World Cup song coming on - 'Football hurts your portfolio'!
Daron Acemoglu, Simon Johnson, Amir Kermani, James Kwak and Todd Mitton have written a paper on whether firms connected to Timothy Geithner benefited from these connections. They do so by looking at how stocks of these firms reacted to the announcement that he was a nominee for Treasury Secretary in November 2008. They find that there were large abnormal returns for connected firms. Below is the paper's abstract and the full paper is available here . The announcement of Timothy Geithner as nominee for Treasury Secretary in November 2008 produced a cumulative abnormal return for financial firms with which he had a connection. This return was about 6% after the first full day of trading and about 12% after ten trading days. There were subsequently abnormal negative returns for connected firms when news broke that Geithner's confirmation might be derailed by tax issues. Excess returns for connected firms may reflect the perceived impact of relying on the advice of a small ne...