The Pitch Rather than the Pit: Investor Inattention During FIFA World Cup Matches

Abstract

At the 2010 FIFA World Cup in South Africa, many soccer matches were played during stock market trading hours, providing us with a natural experiment to analyze fluctuations in investor attention. Using minute-by-minute trading data for fifteen international stock exchanges, we present three key findings. First, when the national team was playing, the number of trades dropped by 45%, while volumes were 55% lower. Second, market activity was influenced by match events. For instance, a goal caused an additional drop in trading activity by 5%. The magnitude of this reduction resembles what is observed during lunchtime, and as such might not be indicative for shifts in attention. However, our third finding is that the comovement between national and global stock market returns decreased by over 20% during World Cup matches, whereas no comparable decoupling can be found during lunchtime. We conclude that stock markets were following developments on the soccer pitch rather than in the trading pit, leading to a changed price formation process. JEL codes: G12, G14, G15Keywords: investor inattention, stock markets, trading volume, high-frequency data, soccer The paper presents three key findings. First, we find strong evidence of decreased activity in stock markets during soccer matches at the 2010 World Cup. Trading activity dropped markedly, especially if the national team was one of the competitors. Compared to normal market circumstances, the median number of trades dropped by 45% if the national team was playing, while the volume dropped by around 55%. Second, we show how goals scored by either team led to an even stronger decline in the number of trades and offered quotes. Also, we find that market activity was already significantly below the benchmark right before the match started, and continued to be lower during the 45 minutes after the match had ended. Third, we show that also price formation was affected during the soccer matches, as the evolution of returns on national markets decoupled from those on global markets.Overall, there is a strong sense that stock markets were following developments on the soccer pitch rather than in the trading pit. These results provide evidence for limited attention in financial markets, which in itself affects the price formation process. Further tests show that inattention was particularly strong for relatively less salient information -there was a particularly strong decoupling of national from global markets as long as the price movements on the global market were relatively small. Furthermore, the cross-sectional dispersion of returns across the individual constituents of a country's stock market index was substantially reduced, suggesting that the distraction coming from the soccer matches led to a reduced focus on firm-specific as opposed to market and sector-wide information.3