Sport is an obsession amongst New Zealanders and Australians. The All Blacks and Wallabies are the national rugby teams and give an immense sense of pride competing at the World Cup being hosted in the United Kingdom. However, with this high regard comes the burden of having to win.
Following losses, fans can be brought to despair as an editorial in The New Zealand Herald subsequent to New Zealand’s 1999 Rugby World Cup semi-final loss to France illustrates: “Seldom has this country suffered a greater sporting disappointment than its loss in the Rugby World Cup semi-final last Sunday and the trauma that seems to have gripped the country for almost a week now… tells us something about ourselves.”
With the emotions All Blacks and Wallabies can generate, this raises the question of whether or not their performance can affect an economic index such as the S&P/NZX 50 or S&P/ASX 200. Edward Saunders (1993) found a systematic relationship between New York weather and major American stock indices and argued that this could be best explained by the mood differences we often experience on rainy days compared to sunny days, similarly, Hedley found evidence of investor overreaction supposedly caused by the euphoria of New Zealand’s KZ7 1987 America’s Cup Challenge.
More recently Alex Edmans, professor of finance at the London Business School, said his research showed that if a national team is eliminated from an international tournament it makes investors fed up and pessimistic the next day. Predicting a defeat for a national rugby team triggers a fall of 0.15% the next day.
As per data* from S&P Capital IQ, the last 3 winners of the Rugby World Cup have all had material increases in their respective markets index in the week following the final: New Zealand’s S&P/NZX 50 up 1.4%, South Africa’s FTSE SA up 7.8% and England’s FTSE 100 up 0.5%. So is it going to be New Zealand or Australia who will capitalise on the nation’s euphoria?
One thing for certain is that both nations will be glued to their televisions early on Sunday morning as the All Blacks and Wallabies go head to head for the first time in a Rugby World Cup Final at Twickenham. And what looks to be up for grabs is not only the William Webb Ellis Trophy, but also the possibility of earning abnormal economic returns or losses in the following days.
*Source: S&P Capital IQ. Data as of Oct 26, 2015.