Shorting small-cap stocks from a major country that is likely to lose has historically proved to be profitable.
It includes correctly predicting surprise defeats for major Western European nations and shorting small-cap stocks from those countries ahead of time. For the best results, investors would need to wait until the elimination stage of the World Cup, starting Dec. 3. There are plenty of stocks to choose from, as England, Germany, France, Spain, Portugal, Belgium and the Netherlands are all playing this year.
There’s a growing literature on the impact of sports events on behavior -- Brazilians havemore heart attackswhen their national team is playing; hospital admissions for heart attacksrose 25%following England’s defeat to Argentina on penalties in the 1998 World Cup; suicides among young, single men in Quebecclimbif the local hockey team gets knocked out of the Stanley Cup early. Similarly, mood affects market performance.
Lost soccer matches have a significant impact on stock markets, especially during the World Cup games, anarticlein the Journal of Finance in found. Excess monthly returns on a loss are larger than 7% and strongest for Western European economies and for smaller stocks, the authors wrote. Smaller companies tend to have a higher percentage of retail and local ownership. There was no corresponding benefit when teams won.
The shares of soccer teams also react far more to unexpected results, apaperin the Journal of Sports Economic found. While that study looked at local, rather than international, matches, it’s not hard to assume that the same logic applies to World Cup games too. It makes sense that the impact of an unexpected loss would exceed that of an expected loss.
