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World Cup Fever and Equity Alpha

3 minute read

There have been numerous academic studies on the economic benefits of hosting the World Cup. A few, out of a long list of studies, can be found here: R Squared Capital Management World Cup Fever and Equity Alpha Blog Post


Infrastructure spending, increased tourism (both short- and long-term), higher labor/civic morale, and increased profile of the host country are often cited as the benefits. On the other hand, the cost of building (and financing) the stadiums, crowding out of private investment, congestion, and the cost of security are some potential disadvantages.

But as international equity investors, we are more focused on the simple question:

what about the impact on equity prices?

Interestingly, we found that in the years leading up to the World Cup, equity indices of the host countries consistently outperformed the MSCI ACWI Index by 8%-10%.

This is not too surprising as we would have expected increased economic activity (building stadiums, roads, and other infrastructure) and higher foreign direct investments to lead to higher earnings and valuations of equity securities, on average. However, the magnitude and consistency of the outperformance is surprising. Have a look at the table below.

world cup alpha chart

*Host of the 2002 World Cup was split between Japan and South Korea;      Source: R Squared Capital Management

In 5 out of 7 World Cups (i.e., “hit rate”), the host country’s equity index outperformed the MSCI ACWI over multiple time periods: for 1-, 2-, and 3-years prior to the World Cup. In each of those time periods, equity indices outperformed by double-digits, on average.

Note, Brazil is an outlier here. In our view, Brazil underperformed in 2013-2014 in large part due to collapsing commodity prices through that period. Iron ore alone makes up more than 10% of total exports from Brazil and those prices were down -50% from 2011 to 2014.

So, if equities of the host country outperform before the World Cup, what happens to performance afterwards?

Well, it appears there is a “hangover” effect. In 4 out of 6 World Cups, equity indices of the host countries underperformed the global index by an average of -4%. This also makes intuitive sense as post-World Cup, productive capacity overwhelms slower demand, at least in the short-term.

With Russia currently hosting the 2018 World Cup, and having enjoyed some outperformance over the MSCI ACWI over the past few years, will history repeat? Will Russian equities underperform over the next year? While the empirical data suggests this might be the case, only time will tell. 

What do you predict? We welcome your comments below. 

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As international equity investors, the team at R Squared Capital Management (former team at Julius Baer / Artio Global) utilizes fundamental and macro analysis in our quest to correctly identify structural tailwinds and headwinds at the geographic, sector and company levels.   



Luis Ahn is a Partner and Analyst at R Squared Capital Management.

Prior to joining R Squared, Luis was a Senior Analyst at Bloom Tree Partners.

Luis received an MBA from The Wharton School and Bachelor of Science in Quantitative Economics and Computer Science from Tufts University. 

To view the firm biographies of RSQ, click here

Posted by Luis Ahn on Jun 28, 2018 10:17:42 AM

Topics: From the Desk of Luis Ahn, International Equity


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