What the World Cup tells us about stock markets, inflation and crime

Michael Bow
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German stock brokers in Frankfurt, Germany (Source: Getty)

The great thing about football is its unpredictability, but what if those seemingly random scorelines and results foreshadowed more quantifiable trends in society, like crime rates, inflation, and stock market performance?

In a well received report out today, analysts at Goldman Sachs have looked at the links between World Cup statistics and finance and business metrics based on 14,000 data points. Here are three findings:

1.The Stock Market

Generally speaking World Cups give a short term boost (between one and three months) to the stock market of the World Cup winners and host country. However, both see a decline in their equity markets over the longer term (which could pose problems for Goldman’s pick to win the championship Brazil, it being both host nation and likely champion).

As this chart suggests, World Cup winners witness an average stock market decline of four per cent one year after their win, while the host nation’s market does even worse, sliding 4.4 per cent. Surprisingly, the nations losing the World Cup final are more resilient, with their stock markets dropping just 0.4 per cent.

(Source: GS)

The exception to the rule appears to be the powerhouse economy of Germany, which saw its flagship equity index rise 21.8 per cent in the year following its World Cup victory in 1974, the year it also hosted the tournament.

The strong equity performance of countries that go on to win the World Cup in the lead up to the championship is also interesting. Two of the strongest stock markets this year, Spain and Italy, could hint at a 2014 World Cup victory - although Goldman warns there is no “obvious trend” in this prediction.

2. Inflation

Much is made of the low rates of price inflation inflation in Europe and the developed world over the past 50 years but the rule of low inflation also holds true for one other metric. Goals scored in the World Cup have been falling over the long term, with the rate declining over time since the first tournament was held in 1930.

(Source: GS)

There’s no obvious explanation for why the number of goals scored today is lower than it was during the 1950s and 1960s (it now averages two to three a game compared to four or five in the embryonic years of the competition), other than perhaps stronger and more organised defenders and goalkeepers.

Indeed, the same could be said for central banks targeting lower inflation: both central defenders and central bankers have similar reactive strategies, moving to head off potential threats that emerge far off into the distance. (Although defenders are not yet prone to giving future guidance to midfielders about what they plan to do to stifle the emerging goalscoring theat!)

3. Violent Crime

Out of left-field comes this: Goldman’s comparison of violent crime incidences in England and Wales and the number of red cards in World Cups.

Although the two may appear to be unrelated, as this graph demonstrates, the correlation between violent crime in England and Wales and World Cup red cards is unnervingly high.

(Source: GS)

Red cards have been falling since their high point at the 2006 World Cup (when 28 were issued), declining at the 2010 championship, and follow a similar pattern to reported violent crimes.

There is no way to guess how many red cards will be issued at this summer's World Cup, but it's a good bet that if it surges past 28 cards, home secretary Theresa May may want to brace herself for some unsettling crime data in the future.