Friday, June 27, 2014

Chart of the week

Admit it: you keep an eye on the World Cup while at work. So do stock traders, apparently.

Bloomberg Businessweek relays the results of a paper by researchers at the European Central Bank, showing that stock market trading volume plunged, at least in some countries, during matches of the 2010 World Cup.

Here's the abstract of the paper, by Michael Ehrmann and David Jan-Jansen (the chart above is from Table 3b, page 28):
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.
Aside from these findings, I found something else noteworthy. On pages 18-19, Ehrmann and Jan-Jansen report that the standard deviation of minute-by-minute stock returns across individual stocks declined significantly during matches. They interpret this result as that limited attention makes traders process less firm-specific information, relative to market- and sector-wide information.

If you don't believe in market efficiency, World Cup games might be a good time to trade.

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